Scalper1 News
Click to enlarge TransCanada Corp (NYSE: TRP ) is a huge North American pipeline company whose network includes over 3,460 kilometers of oil pipeline and over 67,000 kilometers of gas pipeline that transports approximately 20% of North America’s gas. They currently own over $64 billion worth of assets which includes pipelines as well as storage for gas and oil. TransCanada faced huge headwinds in 2015 as the stock dropped as low as -32% from its 2014 high. The stock currently yield a very bountiful 4.7% and has partially rallied from its nasty dip last year, the company has a great history of dividend growth and share buybacks and I think TransCanada represents a good opportunity to buy in on its weakness considering its very impressive ability to grow its revenue. Huge projects to continue TransCanada’s impressive revenue growth TransCanada currently has $13 billion worth of projects that are expected to be operational by 2018 and $45 billion worth of long term projects that are due after. These projects will be a consistent driver of growth for both the medium and long term as the cash flows continue to increase to support the very generous dividend that TransCanada rewards to its shareholders. There has also been talks of acquisitions as TransCanada is reported to be interested in Columbia Pipeline Group for a deal expected to be worth over $10 billion, I believe such a project would unlock value for investors in the long term as Columbia would add over 24,000 kilometers of U.S. gas pipeline to TransCanada’s portfolio. It is clear that TransCanada is focused on growing its pipeline exposure in North America and I believe management is very capable of delivering consistent growth over the long term. Risk: Government rejection of pipeline projects Barack Obama recently rejected the Keystone pipeline which was a huge opportunity for TransCanada to expand, this currently puts phase 4 of the pipeline on hold which consists of over 526 kilometers of new pipeline running through Montana. It is expected that this project may be reviewed at a later time but for now TransCanada will have to focus on expanding elsewhere. There is always the risk that further pipeline expansions will be rejected, although this is a setback – I do not believe that it will stop TransCanada from trying to expand in other areas in order to achieve top of the line growth. Decent Q4 2015 earnings despite energy headwinds TransCanada reported beat analyst expectations for EPS reporting $0.64 compared to $0.61, but missed for revenue as they reported $2.85 billion compared to $2.89 billion expected. TransCanada still had decent revenue growth due to growth in its natural gas pipeline division where it enjoyed a 6.3% growth to $1.49 billion, the energy division which saw 14.5% growth to $895 million and the liquid pipeline division which saw 7.8% growth to $469 million. TransCanada also increased its dividend by 8.7% to $0.56 per share which is a sign of confidence from the management. Safe and growing dividend when combined with share buybacks makes for a very attractive pick TransCanada has increased its dividend for over 15 years straight and I believe income investors should feel very comfortable holding onto this stock as its cash flow growth is very attractive and they are very capable of sustaining its high yield. Given the huge growth potential TransCanada expects dividends to increase up to 10% each year, this makes the stock a dividend growth hero that I believe every investor should consider adding to their portfolios. Warren Buffett is bullish on pipelines as he picked up a huge amount of shares in TransCanada’s competitor Kinder Morgan (NYSE: KMI ). Income investors should pick up the stock and its huge 4.7% yield as I do not believe the current weakness caused by energy woes will last forever. While there are risks of future pipeline rejections, I believe that these concerns will not slow TransCanada’s growth significantly. Dividend investors can sleep well feel safe holding TransCanada and its fat yield as it rebounds from the energy weakness in 2016. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
Scalper1 News