3 Reasons to Consider a Position in TransCanada Corporation

Because of its growth potential, predictable revenue numbers, and lucrative dividend, I would suggest looking at TransCanada Corporation (TSX:TRP)(NYSE:TRP).

| More on:
The Motley Fool

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.

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 Jacob Donnelly has no position in any stocks mentioned.

More on Energy Stocks

Canadian energy stocks are rising with oil prices
Energy Stocks

Why Suncor Energy Stock Fell 10% in September

Energy stocks are top gainers on the TSX in 2022, but still cheap. Suncor Energy stock seems ripe for a…

Read more »

Energy Stocks

Why Canadian Natural Resources Fell 10% in September

With healthy growth prospects and dividend growth, Canadian Natural Resources would be an ideal buy at today's attractive valuation for…

Read more »

Oil pumps against sunset
Energy Stocks

Why Imperial Oil (TSX:IMO) Stock Fell 5.5% in September

Imperial Oil Ltd. (TSX:IMO) stock slipped in September in the face of lower oil prices and rising recession risks.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Retirement Wealth: 2 Oversold Canadian Stocks to Buy Now and Own for Decades

These industry-leading dividend stocks look cheap right now and have increased their distributions annually for decades.

Read more »

Oil pumps against sunset
Energy Stocks

Should You Buy Canadian Natural Resources (TSX:CNQ) Stock on the Pullback?

CNQ stock looks oversold. Here's why.

Read more »

Gas pipelines
Dividend Stocks

Top Crude Oil Stocks to Buy Amid the Recent Correction

The correction in TSX energy stocks seems overdone and they could soon bounce back. Here are two to consider that…

Read more »

A close up image of Canadian $20 Dollar bills
Energy Stocks

TFSA Passive Income: How to Easily Earn $425/Month TAX FREE!

Earn passive income through your TFSA completely tax free! Here are three high-yielding dividend stocks that could easily earn $425/month.

Read more »

energy industry
Energy Stocks

3 Reasons Why Oil Prices Could Rise Again

If oil prices rise again then energy stocks like Suncor Energy (TSX:SU)(NYSE:SU) could rally.

Read more »