TransCanada (Symbol-TRP)

[Nemo2]

..... I'm surprised that investors are still hung up on trailing rather than projected earnings.

Perhaps because I'm a tad pessimistic about analysts abilities in accurately predicting future earnings, in fact future anything.

"Prediction is very hard, especially about the future" - Niels Bohr/Yogi Berra...and others.

[Taggart]

What with debt and the number of shares outstanding continuously rising annually and only being able to pay their full dividend in only one year (2007) out of the last five from free cash flow, I'm beginning to wonder if maybe, just maybe, a part of that fat, juicy dividend I receive every quarter is really just a return of capital.

[Michael D]

What with debt and the number of shares outstanding continuously rising annually and only being able to pay their full dividend in only one year (2007) out of the last five from free cash flow, I'm beginning to wonder if maybe, just maybe, a part of that fat, juicy dividend I receive every quarter is really just a return of capital.

Or they're paying dividends from debt issues.

[GWN789K]

What with debt and the number of shares outstanding continuously rising annually and only being able to pay their full dividend in only one year (2007) out of the last five from free cash flow, I'm beginning to wonder if maybe, just maybe, a part of that fat, juicy dividend I receive every quarter is really just a return of capital.

Or they're paying dividends from debt issues.

Too lazy to find out but I wonder how much of their dividend is "DRIP'd". ie they pay out shares instead of cash. I recall that for CPG the number is somewhere between 25 and 30%.

[pmj]

Too lazy to find out but I wonder how much of their dividend is "DRIP'd". ie they pay out shares instead of cash. I recall that for CPG the number is somewhere between 25 and 30%.

Also depends if the DRIPped shares are bought on the market / taken from treasury (thus being existing shares) - or "created" as new shares.

[ThinkDividends]

Interesting way to raise capital:

TransCanada Corp (TRP) said it will sell interests in two major U.S. gas pipelines to its affiliated partnership for $605 million to help fund its capital spending. TC Pipelines LP (TCLP) will get 25% of both Gas Transmission Northwest LLC and Bison Pipeline LLC.


Enbridge (ENB) could do the same by selling assets to either Enbridge Energy Partners (EEP) or Enbridge Income Fund (ENF).

[Shakespeare]

A pipeline in peril

Trouble on the Mainline, then, means trouble for the country – and there is indeed trouble on the Mainline. It isn’t moving enough gas. In the past five years, contracted volumes for its cross-Canada service have fallen 70 per cent. Its once-full pipes now run, on average, half empty, and as a result, it is nearly 2½ times more expensive to ship a molecule of gas from one end to the other as it was five years ago....


“I don’t see any advantage to be gained in the market by TransCanada failing,” said Murray Newton, president of the Industrial Gas Users Association, whose members represent about one-third of Ontario and Quebec’s industrial gas consumption....


But unless TransCanada and its shippers can somehow come to agreement – a prospect that appears increasingly dim – it will fall to the NEB to decide how to set Mainline tolls. The decision is not just about money, or how to reconcile the interests of Alberta’s gas companies with Ontario’s electrical utilities. It’s about attempting to find a way to preserve that underground energy superhighway.

My view is that it is a strategic asset.

[skepticus]

My view is that it is a strategic asset.

Shakes, would you mind elaborating?

[Shakespeare]

Allowing gas redistribution improves Canada's energy independence. Also, it is usually much easier to shut something down than restart it. A new pipeline would be far more expensive than keeping the old one going.

[AltaRed]

Also, it is usually much easier to shut something down than restart it. A new pipeline would be far more expensive than keeping the old one going.

It is also difficult to mothball lines effectively (against corrosion) in the event TRP otherwise walked away from some of its unused capacity. If TRP and its shippers cannot come to terms on tolls, the NEB will have a difficult job to find something that everyone can live with. I hate the thought of a political solution to 'save the lines' but it may be necessary if the current 'crisis' in natural gas persists much longer.

[skepticus]

Thanks, gentlemen.

What's a TRP investor to do at a time like this?

[AltaRed]

Staying with my 'buy and hold' philosophy. I consider this as nothing more than a bump in the road. OTOH if Keystone gets killed, that bump may turn into a pothole.

[Peculiar_Investor]

Thanks, gentlemen.

What's a TRP investor to do at a time like this?

As I would suggest for any holding, ask yourself the question "Why did I buy this holding?" Has any of the new information changed your investment thesis on the holding? If yes, then re-analyze and make a decision, if no, then continue to hold and collect your dividends.

[zinfit]

I don't like the risks with this stock. I think the story with Interpipe is clearer and more compelling. Enbridge seems like a better story if you want a larger cap pipeline.

[Shine]

Will continue to hold and collect dividends as well.

I purchased TRP after they cut the dividend in 1999. I am happy with the return. The company seems to be drifting since Kvisle retired, but then so has the economy.

Agree that Enbridge might have been the better purchase from hindsight but now they are betting heavily on the Gateway for growth and may well be tied up in courts and consultations for years trying to cross native lands in BC.

[JaydoubleU]

CIBC has published their Monthly World Markets Report and initiated coverage of pipelines and utilities. They rate TRP and EMA as Top Picks. Here's an excerpt:

TransCanada Corp. has completed roughly two-thirds of a $20 billion capital spending program that includes “mega-projects” such as the Bruce nuclear refurbishment and the Keystone oil pipeline. The company has also made significant investments in gas pipeline infrastructure in Alberta and B.C. to access shale gas deposits, and in a number of power generation facilities, both conventional thermal and renewables.
The company is only starting to see the financial benefit of these investments, which should help drive earnings growth from 2011 through 2014. Indeed, if all planned spending is completed, TransCanada could see an almost 50% increase in earnings before interest, taxes, depreciation and amortization (EBITDA) over this timeframe compared to 2010.

The biggest risk is that the Keystone extension doesn't get approved. Nowhere does the Mainline get mentioned.

I also recall TRP's presentation at its 2010 annual meeting in which they forecast accelerating growth in cash flow as numerous projects come on stream. They have lots of projects going on, and Keystone is just one of them. My feeling is that it will get approved because if it doesn't, there will be political pressure to ship the oil westwards to the coast for export to Asia.

TRP has underperformed ENB, but that may be precisely why one should favor the former. Anyway, both are core holdings I and have no plans to sell either.

[Taggart]

As I said upthread, I figure that I'm getting a return of capital every time I receive a dividend from TRP or ENB, so for that factor alone, I'm not keen on either company, but own both since the pickings in Canadian dividend growth stocks are slim and I like to remain diversified.

[mpav]

The issues with the mainline have been going on for years, and hence TRP's shift into other projects (oil pipes, power etc.). Mainline volumes will continue to be lower until they get BC shale gas connected or somehow link to the eastern basins (although tolls would be very different).

TRP's job is to manage the revenue decline with mainline with growth elsewhere and I think they are doing a good job on that front. I doubt they would do a great big write down as western natural gas players still need to sell their goods and the pipe will not go dry.

But if you are concerned, move to Spectra energy (they run lots of NG pipes along the eastern seaboard) and should benefit from the shale gas finds there.

ENB/IPL arent true alternatives in my mind, as they primarly move oil and that has different issues/risks. In this space you want expsoure to both (hold a NG pipe and an oil pipe).

All mentioned are good investments in my mind, and I own all expept ENB (which I would buy but I missed the run up and a little pricey for me now).

[Taggart]

But if you are concerned, move to Spectra energy (they run lots of NG pipes along the eastern seaboard) and should benefit from the shale gas finds there.

I'm assuming you're referring to the Spectra listed on the NYSE? For a minute I thought it was a Canadian pipeline utility I'd missed.

[mpav]

Yup, they have a mix of natural gas distrubtion (union gas piece) as well as an NG pipeline and storage network. I watched since they were spun from Duke awhile back.

I always liked the regulated utility of enbridge, and the less risky NG transport of TRP, and so Spectra kinda fit the best of both worlds category....it is a core holding in my US dividend portfolio.

[Taggart]

Yup, they have a mix of natural gas distrubtion (union gas piece) as well as an NG pipeline and storage network. I watched since they were spun from Duke awhile back.

I always liked the regulated utility of enbridge, and the less risky NG transport of TRP, and so Spectra kinda fit the best of both worlds category....it is a core holding in my US dividend portfolio.

Thanks for the above. Any thoughts on Pacific Northern Gas (PNG)? It's a pipeline transporter of natural gas, albeit a small player.

Disclosure: I own shares in PNG equal to about 5% of my taxable portfolio.

[zinfit]

The Keystone project will move oil from the oil sands into the US market. Trap is a lot more then a gas pipeline company.

[pitz]

Much of the value here is in all of their long-term fixed rate debt. In the past 20-30 years of deflation, having 10%, 8% long term debt essentially has been an albatross around the neck of this company, sucking away much of their cashflow, and giving most of the upside of the business to the debt holders. As we exit the secular deflationary market (ie: secular bull market in bonds), and move into an inflationary environment (ie: bear market in bonds), this firm should perform considerably better, being able to simultaneously increase its cashflow, while decreasing the relative burden of long-term debt service.

Some of their assets obviously have O&M costs that are highly sensitive to inflation, but many don't, such as Bruce Nuclear, and even the pipelines themselves.

Given where we are in the interest rate cycle, I see no reason to be anything but very bullish on this company since it stands to benefit enormously from higher interest rates, and, even if rates don't go higher, should at least provide a market competitive return.

[mpav]

The Keystone project will move oil from the oil sands into the US market. Trap is a lot more then a gas pipeline company.

It is actually primarly a NG pipeline and power....currently oil is a small bit:

EBIT NG pipes - 552M, Oil - 76M, Power 254M for Q1.

Granted if approval is given for the full deployment and no issues in building etc, oil will be a much bigger part of TRP revenue, but that is currently a strategy (not yet materilized in earnings). As said they are deploying capital to expand the business model (first with power, now with oil)

[AltaRed]

Granted if approval is given for the full deployment and no issues in building etc, oil will be a much bigger part of TRP revenue, but that is currently a strategy (not yet materilized in earnings). As said they are deploying capital to expand the business model (first with power, now with oil)

This has long been TRP's strategy to decrease its dependence on NG. For many years before shale gas, e.g. early/mid 1990s, TRP saw NG production peaking in Western Canada and its primary hopes to keep the pipes relatively full post-decline was Mackenzie and Alaska (and hence their tenaciousness in having an equity interest in both). No one saw shale gas coming and that is an albatross* for TRP in the short term (perhaps 10 years) because NE BC shale gas cannot compete economically with US Lower 48 sources (or potentially even Quebec sources). Longer term, NEBC shale gas (and/or Alaska gas and/or Mackenzie gas) will help keep the system alive but that will depend on strategic intent to keep current mainline systems in good operating condition. Hence, the dilemma faced by current shippers, TRP and/or NEB mandates.

* The purchase of the Nova system in Alberta has turned out to be another winner because of increasing fuel gas requirements for the oil sands that must use TRP lines to get there. The dillemma is primarily with that long mainline system from central Alberta to Ontario.