Does TransCanada Corporation Make a Solid Income Investment?

Because of its long list of infrastructure products, TransCanada Corporation (TSX:TRP)(NYSE:TRP) should be able to grow dividends for the next few years, making it a smart income investment.

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One of the problems that investors have with investing is that the best way to make money over the long haul is also the most boring. Warren Buffett excels at buying stocks, holding them, receiving dividends, and never divesting his position. He is also one of the richest men in the world; yet so many investors don’t actively follow in his footsteps.

TransCanada Corporation (TSX:TRP)(NYSE:TRP), while not a stock that Warren Buffett owns, is a stock that might seem boring, but over the long haul, could provide significant returns for investors. Before we talk about whether or not the stock is a smart income investment, it helps to understand its business.

TransCanada transports fluids and electricity

The business that TransCanada is in is energy delivery. Specifically, it runs a network of oil and natural gas pipelines as well as a collection of power plants. All told, it has 68,000 km of natural gas pipeline, 4,200 km of oil pipeline, and 19 power plants that are able to generate 10,900 megawatts of power.

On top of this, the company has $12 billion in small infrastructure projects that are likely to be completed and in operation by 2018. This $12 billion doesn’t include the two projects that many people know: Keystone XL and Energy East. The former is a plan to get oil from western Canada to the United States, whereas the latter is to get energy from west to east through Canada.

The problem with them both is that they are politically charged topics. Democrats in the United States are not likely to approve Keystone, and with Democrats currently the likely winner of the next presidential election, Keystone is dead on arrival until the 2020s, at least. As for Energy East, there are too many different politicians in Canada fighting over what to make of the pipeline.

However, the $12 billion in other projects should help the company grow a decent amount in the coming years. And this leads us to the question that many investors have been wondering.

Is TransCanada an income investment?

Under normal circumstances, I might suggest avoiding this stock because of how politically charged it is. However, the income it generates is simply too good to pass up. Because of that, I believe investors should consider acquiring shares.

At present-day prices, it pays a yield of approximately 4.6%, which comes out to $2.08 per share per year. That’s a respectable dividend, but because of the smaller infrastructure projects that it intends to bring online in the next few years, the company expects that the dividend will increase by 8-10% per year in 2016 and 2017.

I believe that the test of a great income investment is whether or not I am getting raises semi-regularly. It doesn’t have to be yearly, but I can’t be sitting at the same amount of money distributed every year. With TransCanada, that’s simply not the case.

Therefore, I advise investors who are looking for income to acquire shares of the company. It may be dealing with some political problems, but that shouldn’t interfere with it as it continues to reward investors for years to come.

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.

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