Income Investors: TransCanada Corporation Yields a Solid 4.7%

Are you looking for income growth? TransCanada Corporation (TSX:TRP)(NYSE:TRP) is a good choice with a safe 4.7% yield.

| More on:
The Motley Fool

TransCanada Corporation (TSX:TRP)(NYSE:TRP) costs under $48 per share and yields 4.7%. This is a fair price to pay for the leading North American energy infrastructure company.

The business

TransCanada develops and operates natural gas and liquids pipelines, power generation, and gas-storage facilities. It owns $64 billion of assets.

Its natural gas pipelines run more than 67,000 km and transport about 20% of North America’s gas needs. TransCanada also has 368 billion cubic feet of gas-storage capacity. Additionally, TransCanada’s Keystone Pipeline transports roughly 20% of western Canada’s crude oil exports to the U.S. Midwest and Gulf Coast.

On top of that, the energy infrastructure leader owns or has interests in more than 13,100 megawatts of power generation across 20 essential facilities. One-third of that power is sourced from green energy such as wind, hydro, and solar power.


In the near term, TransCanada has $13 billion of growth projects that are anticipated to be in service by 2018. TransCanada also has $45 billion of commercially secured medium- to long-term projects.

These projects should help drive growth along with TransCanada’s existing assets, which are primarily underpinned by cost-of-service regulated business models or long-term contracts with credit-worthy counterparties. These quality assets generate highly predictable cash flows with minimal commodity or volume throughput risk.

Dividend and dividend growth

TransCanada pays a quarterly dividend of 56.5 cents per share, equating to an annual payout of $2.26 per share. What’s more to like is that TransCanada has increased its dividend for 15 consecutive years. It last increased it by 8.7% in the first quarter of this year. From 2011 to 2015, TransCanada only paid out 40-48% of its distributable cash flow as dividends.

This shows that TransCanada is a responsible company to its shareholders, especially to those who are income oriented. Going forward, TransCanada expects to increase its dividend by 8-10% each year through 2020.

If you buy 100 shares today (costing about $4,800) you can expect to earn $226 of dividends in the next 12 months. By 2020, you’ll earn about $319 of dividends, essentially growing your income by 41%, and you’ll sit on a yield on cost of about 6.6%.


Based on TransCanada’s normal long-term multiple, it is fairly valued at about $48 per share. If you’re looking for a decent income of 4.7%, TransCanada, with an S&P credit rating of A-, is a good choice.

It has a 15-year track record of growing dividends with sustainable payout ratios. Further, it has entered its 16th consecutive increase early this year, and it anticipates to grow its dividend by 8-10% every year through 2020. This is supported by its carefully selected growth projects.

Any further dips will make TransCanada an even stronger buy.

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 Kay Ng owns shares of TransCanada.

More on Dividend Stocks

A bull and bear face off.
Dividend Stocks

The 3 TSX Stocks to Buy Before a Long-Term Bull Market Begins to Build

The TSX may not go bullish for a while, even when the economy recovers from a recession, but investors should…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

TFSA Investors: Make $200 in Monthly Passive Income With This 1 TSX Dividend Stock

Here’s an attractive dividend stock TFSA investors can buy now to earn $200 in monthly passive income.

Read more »

A plant grows from coins.
Dividend Stocks

TFSA Investors: How to Create $40,000 in Returns and Passive Income in 30 Years

If you think you'll need just $40,000 in passive income per year in retirement, your TFSA can get you there…

Read more »

stock analysis
Dividend Stocks

Buy These TSX Dividend Shares Next Week

Are you looking for dividend stocks to add to your portfolio? Buy these picks next week!

Read more »

edit Safety First illustration
Dividend Stocks

3 of the Safest Dividend Stocks in Canada

These three dividend stocks are all high-quality companies with defensive operations, making them some of the safest investments in Canada.

Read more »

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

3 Stocks to Anchor Your Portfolio in a Rocky Market

Three stocks are solid anchors in any portfolio today for their outperformance in a weak market and defiance of the…

Read more »

money cash dividends
Dividend Stocks

3 Solid Dividend Stocks That Cost Less Than $30

Given their solid financials and healthy cash flows, the following under-$30 dividend stocks are a good buy in this volatile…

Read more »

grow money, wealth build
Dividend Stocks

2 High-Yield Dividend Stocks With Rock-Solid Payout Ratios

These two dividend stocks offer unbelievably high yields of more than 7% and earn more than enough free cash flow…

Read more »