TransCanada Corporation (TSX:TRP)(NYSE:TRP) and Inter Pipeline Ltd. (TSX:IPL) are two of the largest operators of crude oil and natural gas pipelines and storage facilities in North America. Both stocks represent great long-term investment opportunities today, but the laws of diversification state that we cannot own both, so let’s take a look at each company’s most recent quarterly report, their stocks’ valuations, and their dividends to determine which represents the better buy today.
TransCanada announced first-quarter earnings results on the morning of May 1, and its stock has responded by falling over 4% in the weeks since. Here’s a summary of eight of the most notable statistics from the report compared with the year-ago period:
- Comparable net income increased 10.2% to $465 million
- Comparable earnings per share increased 10% to $0.66
- Revenue decreased 0.3% to $2.87 billion
- Total delivery volumes decreased 3.7% to 23.4 billion cubic feet of natural gas per day
- Comparable earnings before interest, taxes, depreciation, and amortization increased 9.7% to $1.53 billion
- Comparable earnings before interest and taxes increased 9.4% to $1.1 billion
- Funds from operations increased 4.6% to $1.15 billion
- Cash provided by operating activities decreased 22.4% to $760 million
At today’s levels TransCanada’s stock trades at 21.7 times fiscal 2015’s estimated earnings per share of $2.47 and 20.2 times fiscal 2016’s estimated earnings per share of $2.65, both of which are inexpensive compared with the industry average price-to-earnings multiple of 42.8.
In addition, TransCanada pays a quarterly dividend of $0.52 per share, or $2.08 per share annually, giving it stock a 3.9% yield at today’s levels. It is also worth noting that the company has increased its annual dividend payment for 15 consecutive years, making it one of the top dividend-growth plays in the market today.
Inter Pipeline Ltd.
Inter Pipeline announced record first-quarter earnings results after the market closed on May 11, but its stock has responded by remaining unchanged in the weeks since. Here’s a summary of eight of the most notable statistics from the report compared with the year-ago period:
- Net income increased 32.1% to a record $113.73 million
- Earnings per share increased 25.9% to $0.34
- Revenue decreased 1.2% to $405.79 million
- Total pipeline throughput volumes increased 27.5% to a record 1,311,900 barrels per day
- Total extraction production increased 3.5% to 113,000 barrels per day
- Adjusted earnings before interest, taxes, depreciation, and amortization attributable to shareholders increased 29.9% to $213.1 million
- Funds from operations increased 34% to a record $176.5 million
- Cash provided by operating activities increased 18.2% to $158.58 million
At current levels Inter Pipeline’s stock trades at 22.9 times fiscal 2015’s estimated earnings per share of $1.34 and 21.6 times fiscal 2016’s estimated earnings per share of $1.42, both of which are inexpensive compared with the industry average price-to-earnings multiple of 42.8.
Additionally, Inter Pipeline pays a monthly dividend of $0.1225 per share, or $1.47 per share annually, which gives its stock a 4.8% yield at today’s levels. The company has also increased its dividend seven times since 2009, and I think it could announce another increase in the second half of fiscal 2015.
Which stock should you buy today?
After comparing the companies’ most recent quarterly reports, their valuations, and their dividends, I think Inter Pipeline represents the better long-term investment opportunity today. TransCanada trades at more attractive forward valuations, but Inter Pipeline reported stronger first-quarter earnings results and it has a much higher dividend yield, so I think it is the winner in this match-up. Long-term investors should take a closer look and strongly consider beginning to scale in to positions in Inter Pipeline today.
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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 Joseph Solitro has no position in any stocks mentioned.