Similar to the consumer staple dividend stock analysis series (including CLX, CL, KMB, PG, JNJ) I published in October, I’m starting a new one on Canadian utilities dividend stocks. Canadian utilities can be quite interesting for both Canadian and US investors as they offer great diversification within their power sources. They show great strengths in both oil (pipelines) and electric power plants. Here’s the list of Canadian companies that will be covered before Xmas:
Emera Inc – EMA
Encana Corp – ECA
Fortis – FTS
Transcanada Corp – TRP
Transcanada (TRP) Business Description:
Transcanada is an energy infrastructure company focusing on three core businesses:
- Natural Gas (via pipeline)
- Oil (via pipeline)
- Energy
Transcanada has been best known for its pipelines but it is currently working on several projects to increase its market share as an energy provider. TRP currently runs 19 energy plants in Canada and US. The company also benefited from the oil sand boom in Alberta to extend its pipelines across Canada and the USA.
Transcanada’s energy sector has been developed through several technologies (natural gas, coal, nuclear, hydro, wind and solar energy). It’s primary business is being done in Alberta, Ontario and Quebec.
TRP Stock Graph
TRP Dividend Growth Graph
TRP is showing a consistent dividend increases throughout the years. The almost mythical image of a pipeline pumping cash out of the end of the pipe is respected in this case, lol!
The Company Ratios and Financial Info:
| Ticker | TRP |
|---|---|
| Name | TransCanada Corp |
| Dividend Metrics | |
| Current Dividend Yield | 3.88 |
| 5 year Dividend Growth | 5.36 |
| 1 year Dividend Growth | 4.82 |
| Company Metrics | |
| Sales Growth (1 year) | 13.33 |
| Sales Growth (5 year) | -0.5 |
| EPS growth (5 year) | -1.89 |
| P/E ratio | 22.89 |
| P/E Next Year | 19.07 |
| Margins growth | #VALUE! |
| Payout ratio | 76.27 |
| Return on Equity | 8.58 |
| Debt to Capital Ratio | 0.67 |
Despite a steady dividend growth policy, we can see that sales and earnings are not as stable. The sales have been stable over the past five years while the earnings are going up and down as the following graph shows:
Another interesting graph is always the earnings per share (EPS). While dividend payouts have been increasing over the past 5 years, the EPS are not following the same trend. This may explain a relatively high payout ratio (76%):
TRP Stock Technical Analysis
TRP is currently trading on a strong uptrend. It might be a good time to acquire this stock. Click here to get a free stock analysis report on TRP.
Transcanada Upcoming opportunities and dangers:
TRP’s hectic earnings are obviously due to the cyclical demand and pricing of its products. Recent lower earnings were mainly impacted by lower activities from its US natural gas pipelines and power plants.
Transcanada is a well established leader in its industry and its existing 57,000 km of wholly owned natural gas pipelines will definitely assure a certain level of income to come each year. But we need to look at its growth potential as dividend investors.
In this regards, we can say that TRP is doing everything they can to ensure its sustainability. Since 2010, Transcanada has brought $10 billion of growth projects (mainly new energy plans and pipelines) into service and it’s looking forward to complete an additional $12 billion of new projects by the end of 2014.
Nonetheless, it’s important to mention that from 2009 to 2011, the Natural gas division EBITDA is going slowing down from $3,093M in 2009 to $2,915M in 2010 and then up to $2,967M in 2011. The future of this company seems to be in its energy plants that went from an EBITDA of $1,131M in 2009 to $1,338M in 2011.
Final Thoughts on Transcanada
After writing this dividend growth stock analysis, I can’t say that I have fallen in love with this company. However, I can’t say that I would not consider it either. TRP is a strong dividend paying stock showing the potential of keeping a competitive dividend payout. Since I’m bullish about the economy for the upcoming years, I have no doubt that TRP will be able to grow both its sales and earnings.
I’ll wait until I finish my series to give a final verdict. What do you think?
Disclaimer: I do not hold shares of TRP
Sources:
Good post, thank you. TRP has been a long core stock for me. I wish the dividend was higher. I like IPL much better right now, but it’s much smaller. But still, don’t they all start small?
Hello Michel,
I think the dividend yield is not bad. Considering that they are already showing a payout ratio at 76%, I would not hope for a dividend increase if the EPS doesn’t follow:-)
IPL stock graph is quite impressing! maybe I should add it to my list 😉
I’ll be covering FTS on Monday, stay tuned!
Good post and details. Love TRP, love the dividends paid to me.
Mike, tks for utility coverage. As a suggestion for further articles could you take a look at some of the bigger energy names on the TSX that currently have high yields. I think dividend investors are probably wondering or worrying about the sustainability of the dividend stream at PWT, CPG, TA, etc. in view of oil price pullbacks. Thanks
I’m treading carefully with oil and natural gas stocks. We keep discovering HUGE amounts of these resources and due to soaring supply we will see the demand and ultimately price for these resources decline. That will effect these companies bottom lines and will in turn hurt their share prices.
Have you looked at US pipeline companies such as KMP, EPD etc? They seem to have higher yields, higher distribution growth and a large portion of their distirbutions are tax-free.