For years proponents of TransCanada Corporation’s (TSX:TRP)(NYSE:TRP) Keystone XL pipeline have claimed that without Keystone, Canadian crude would be shipped by rail instead. The narrative is still strong today.

So, does that mean that investors should pile their money into Canadian National Railway Company (TSX:CNR)(NYSE:CNI) and Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP)?

Some outdated arguments

Keystone supporters often point to a study from early 2014, one commissioned by the U.S. State Department, which stated that Keystone’s rejection would not slow down growth in the oil sands. But that study was released when oil was trading for US$100 per barrel. It also noted that if oil prices fell below US$70, then many oil sands projects would become uneconomic.

So, with oil trading for less than US$50 per barrel, there is serious doubt about future growth in the oil sands. Meanwhile, there are other pipeline applications in the works, with TransCanada’s Energy East being the most promising. Thus it’s very reasonable to assume that pipeline capacity can keep up with growth in oil sands production, something that couldn’t be said a couple of years ago.

As it stands, light crude oil sells for about the same price in both Canada and the United States. Thus it makes little sense to spend $15-20 per barrel transporting oil by rail. And even if oil prices increase in the United States, then American production should have little problem filling the gap.

TransCanada is the better option

This puts CN and CP in an awkward position. Both of their networks extend into Alberta’s energy-producing regions, but the real demand for crude by rail is now in the United States, especially in North Dakota. This is where railways such as BNSF dominate.

Thus there’s little reason to be optimistic about CN’s and CP’s crude-by-rail businesses. And with the two companies trading at 18 and 20 times earnings, respectively, there’s little upside for the shares. You won’t get much in the way of dividends either, with CN yielding 1.6% and CP yielding less than 1%.

The outlook is much brighter for TransCanada. The company still has $35 billion of commercially secured projects in its pipeline (no pun intended), and intends to keep growing its dividend by 8% per year. Longer term, the company should have more opportunities to build pipelines in the United States, where crude by rail is over relied upon.

Yet TransCanada’s shares don’t reflect this, having decreased by more than 20% over the past year. Its dividend now yields close to 5%. So, the odds are much more in your favour with this stock than they would be with CN or CP.

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Fool contributor Benjamin Sinclair has no position in any stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.