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3 Reasons to Consider a Position in TransCanada Corporation

If you’ve heard of the Keystone XL pipeline, you’ve heard of TransCanada Corporation (TSX:TRP)(NYSE:TRP). This pipeline appears to be one of the primary issues that splits Democrats and Republicans in the United States. Time and time again, President Obama vetoes the acceptance of this pipeline, making it very difficult for TransCanada to get it off the ground.

The simple reality is that even if the Keystone XL pipeline is not accepted there is still plenty of opportunity for the company to grow its business. Does that mean you should buy TransCanada? Here are a few reasons to consider it.

1. It’s got growth

Keystone would be great for TransCanada. But even without it, there is still plenty of demand for pipeline infrastructure. The railroads can only handle so much, so if TransCanada can get other pipelines in operation, it will result in increased revenue for the company.

Without taking Keystone into the equation, the company has $38 billion in projects that it’s planning to work on. That’s because the infrastructure is needed. As long as these pipelines get approved, there’s little doubt in my mind that TransCanada will experience some tremendous growth.

2. Its business model is really simple

When I was a kid, I always tried to calculate how much money a tollbooth would make. I’d try to calculate the number of cars by the cost per car. That same calculation works when talking about TransCanada, except we’re talking about the amount of oil rather than the amount of cars.

TransCanada charges per barrel of oil that flows through its pipes. That means that if an oil drilling company wants to get its oil from point A to point B, it needs to pay. And the farther that distance is, the more money that the company likely has to pony over.

All this results in very predictable revenue numbers. The company has a good grasp on how much it’ll bring in each year, which leads me to my third point.

3. A stable and growing dividend

When a company knows how much money is going to be coming in, it is better able to plan for dividend payments and growth. Since 2000, the dividend has grown from $0.80/share to $2.08/share. That’s a really attractive dividend hike. Even during the economic crisis TransCanada was raising the dividend.

Between now and 2017, TransCanada expects to raise the dividend by 8% each year. Theoretically, the dividend could be $2.43/share by 2017 if TransCanada’s predictions are spot on.

One concern

There is one concern right now and that’s the price. Its forward P/E is 20.72. That’s a little pricy if you ask me. However, because the company appears to be growing its business, has a lot of growth potential, and pays a really sweet dividend, I wouldn’t be too concerned about it.

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Fool contributor Jacob Donnelly has no position in any stocks mentioned.

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