Canadians are searching for top quality dividend stocks to help them save some cash for retirement.
Let’s take a look at TransCanada Corporation (TSX:TRP)(NYSE:TRP) to see if it is an attractive pick right now.
Earnings
TransCanada just reported solid Q1 2017 results.
The company earned net income of $643 million, or $0.74 per share, compared to $252 million, or $0.36 per share, for Q1 2016.
TransCanada’s natural gas pipeline business was largely responsible for the strong gains, led by benefits coming from the acquisition of Columbia Pipeline Group last year for US$11.3 billion.
Net cash provided by operations hit $1.3 billion in the quarter.
Developments
TransCanada has $23 billion in near-term capital projects under development. As these assets are completed and go into service, the company expects to see cash flow grow enough to support annual dividend hikes of at least 8% through 2020.
Medium- and long-term opportunities total $45 billion and exist across all three of the company’s core businesses, including liquids pipelines, natural gas pipelines, and energy assets.
One of the larger projects is Keystone XL.
President Obama originally rejected Keystone, but President Trump is more open to the idea of allowing the pipeline to be built, and TransCanada received a Presidential Permit for the project during the first quarter of this year.
The company is now in the process of securing regulatory approval from Nebraska and continues to work on commercial agreements with customers.
Another mega-project, Energy East, would carry Alberta crude oil to refineries in eastern Canada.
The pipeline is back to square one in the approval process, but there is a chance it will eventually be built.
Dividend growth
TransCanada averaged 7% compound annual dividend growth from 2000 to 2016 and is targeting even better results in the coming three years.
The current quarterly distribution of $0.625 per share yields 3.9%.
Should you buy?
TransCanada isn’t as cheap as it was a year ago, but the stock is still attractive to buy-and-hold investors who want to add reliable dividend-growth stocks to their RRSP holdings.
Using the dividends to buy more shares is a great way to take advantage of the power of compounding to boost the size of the portfolio.
Annual dividend growth could exceed 8% if Keystone moves forward quite quickly or if Energy East eventually gets the green light.
