TransCanada Corp. Stock: Is it Time for Dividend Investors to Buy?

TransCanada Corporation (TSX:TRP)(NYSE:TRP) offers a 5% yield and a growing dividend.

| More on:

Income investors are searching for top-quality stocks with growing dividends and above-average yields. That’s often hard to find, but the downturn in the market is finally providing retirees and other dividend seekers a chance to lock in some impressive returns from industry-leading companies.

Let’s take a look at TransCanada Corporation (TSX:TRP)(NYSE:TRP) to see if it deserves to be on your buy list today.

Earnings

TransCanada reported 2017 comparable earnings of $2.7 billion, or $3.09 per share, representing a nice improvement over the 2016 results of $2.1 billion, or $2.78 per share.

The solid results came from strong performances in the company’s existing assets as well as the addition of $5 billion in completed projects during the year.

Growth

TransCanada spent US$13 billion to acquire Columbia Pipeline Group in 2016. The deal added strategic assets in the growing Marcellus and Utica shale plays, as well as important gas infrastructure running from New York to the Gulf Coast. Columbia also provided a nice boost to the capital plan.

In fact, TransCanada is working its way through $23 billion in near-term projects that should be completed by the end of 2021, including the recently announced $2.4 billion NGTL expansion. Investors should see additional small projects pop up, as the company evaluates opportunities across the business lines, which includes assets in Canada, the United States, and Mexico.

Beyond 2021, TransCanada has an additional $20 billion in larger developments under consideration, including Keystone XL, the Bruce Power life extension, and Coastal GasLink.

Dividends

TransCanada plans to raise the dividend by at least 8% per year through 2021, as the new assets are completed and go into service. If any of the larger, long-term projects get the final green light, management could extend the dividend-growth guidance.

TransCanada recently raised the dividend by more than 10% for 2018, representing the 18th consecutive annual increase to the payout, so investors should feel comfortable with the outlook.

At the time of writing, the stock provides a yield of 5.1%.

Risks

TransCanada’s stock price is down amid the broader sell-off in the energy infrastructure sector.

What’s going on?

The market is concerned rising interest rates could boost borrowing costs and put a pinch on cash flow available for distributions. In addition, there is a theory that funds will begin to shift out of go-to dividend names and into fixed-income alternatives, such as GICs.

These are valid points to consider when evaluating TransCanada, but the pullback in the share price from $64 to the current level of $54 might be overdone.

Should you buy?

Investors who buy today can pick up a rock-solid 5% yield with steady dividend growth on the horizon. Even if the stock price remains at the current level, TransCanada should be an attractive buy-and-hold pick for an income-focused portfolio today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stock mentioned.

More on Energy Stocks

man touches brain to show a good idea
Energy Stocks

1 No-Brainer Energy Stock to Buy With $500 Right Now

Should you buy a cyclical energy stock at its decade-high? Probably not. But read this before you make a decision.

Read more »

A solar cell panel generates power in a country mountain landscape.
Energy Stocks

Top Canadian Renewable Energy Stocks to Buy Now

Here are two top renewable energy stocks long-term investors can put in their portfolios and forget about for a decade…

Read more »

oil and gas pipeline
Energy Stocks

Where Will Enbridge Stock Be in 3 Years?

After 29 straight years of increasing its dividend and a current yield of 6%, here's why Enbridge is one of…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold for 2025?

Enbridge stock just hit a multi-year high.

Read more »

oil pump jack under night sky
Energy Stocks

Where Will CNQ Stock Be in 3 Years?

Here’s why CNQ stock could continue to outperform the broader market by a huge margin over the next three years.

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Is Imperial Oil Stock a Buy, Sell, or Hold for 2025?

Valued at a market cap of $55 billion, Imperial Oil pays shareholders a growing dividend yield of 2.4%. Is the…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Where Will Imperial Oil Stock Be in 1 Year?

Imperial Oil is a TSX energy stock that has delivered market-thumping returns to shareholders over the last two decades.

Read more »