What Does the Suspension of the Energy East Pipeline Mean for Investors?

With the Energy East project on hold, is TransCanada Corporation (TSX:TRP)(NYSE:TRP) still a good buy?

| More on:
pipeline

TransCanada Corporation (TSX:TRP)(NYSE:TRP) recently announced that it wanted to suspend the application it had made for the Energy East pipeline for 30 days, so it can evaluate the project and decide whether it is still going to move forward with it.

The proposed pipeline would span 4,500 kilometres, ranging from Alberta all the way to New Brunswick. The project would make it easier to transfer oil in Canada and make parts of the country less reliant on foreign oil. The reason for TransCanada’s decision to suspend its application is because the National Energy Board, which is reviewing the project, has expanded its review to consider the impact of both upstream and downstream emissions from the proposed pipeline. The concern for TransCanada is how this will impact its costs by having to meet additional demands.

The suspension of the application could just be the first step towards the ultimate cancellation of the $15.7 billion pipeline project.

What does this mean for investors?

This development could be a big blow to investors of TransCanada if the company backs out of the project, which would have seen 1.1 million barrels of crude transported daily as a result of the pipeline and would have resulted in significant growth to the company’s top and bottom lines. Other concerns include what this could mean for future projects for the company and that growth in Canada might be limited, especially with a government that has not been oil and gas friendly.

Many oil and gas companies have already scaled back capital spending as a result of a poor price of oil, and increasing government regulation doesn’t offer any incentive to change that.

Is it worth investing in oil and gas?

As the country puts more focus on climate change and creates policies that restrict the oil and gas industry, it may no longer be a good place to put your money, especially if you are counting on domestic growth. With a carbon tax already in place, and governments that are trying to make the country less reliant on oil and gas, the opportunities for growth in the industry might be limited.

The one saving grace is that south of the border, the U.S. does have a more oil- and gas-friendly government, and with many Canadian oil and gas companies having operations in the U.S. as well, it may not be all doom and gloom just yet.

Is TransCanada still a good investment?

Investors haven’t had much of a reaction to the company’s hesitation on the project, and that may not come until after a decision is made, as a healthy dose of pessimism has likely already been priced into the share price. TransCanada has seen significant growth, even during the downturn in the oil and gas industry as revenues of just under $8.8 billion in 2013 have grown to over $12.5 billion in 2016 for an increase of 42% during that time.

The share price has only yielded investors returns of 2% this year but with dividends of 4%, it does give you some incentive to buy and hold. However, given the current economic conditions and all the uncertainty around major projects like Energy East and Keystone XL, I would hold off until one of those projects gets approved before investing.

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 David Jagielski has no position in any stocks mentioned. 

More on Dividend Stocks

money goes up and down in balance
Dividend Stocks

This 6% Dividend Stock Is My Top Pick for Immediate Income

This Canadian stock has resilient business model, solid dividend payment and growth history, and a well-protected yield of over 6%.

Read more »

ways to boost income
Dividend Stocks

1 Excellent TSX Dividend Stock, Down 25%, to Buy and Hold for the Long Term

Down 25% from all-time highs, Tourmaline Oil is a TSX dividend stock that offers you a tasty yield of 5%…

Read more »

Start line on the highway
Dividend Stocks

1 Incredibly Cheap Canadian Dividend-Growth Stock to Buy Now and Hold for Decades

CN Rail (TSX:CNR) stock is incredibly cheap, but should investors join insiders by buying the dip?

Read more »

bulb idea thinking
Dividend Stocks

Down 13%, This Magnificent Dividend Stock Is a Screaming Buy

Sometimes, a moderately discounted, safe dividend stock is better than heavily discounted stock, offering an unsustainably high yield.

Read more »

Canadian Dollars bills
Dividend Stocks

Invest $15,000 in This Dividend Stock, Create $5,710.08 in Passive Income

This dividend stock is the perfect option if you're an investor looking for growth, as well as passive income through…

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

3 Compelling Reasons to Delay Taking CPP Benefits Until Age 70

You don't need to take CPP early if you are receiving large dividend payments from Fortis Inc (TSX:FTS) stock.

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

Better Dividend Stock: TC Energy vs. Enbridge

TC Energy and Enbridge have enjoyed big rallies in 2024. Is one stock still cheap?

Read more »

Concept of multiple streams of income
Dividend Stocks

Got $10,000? Buy This Dividend Stock for $4,992.40 in Total Passive Income

Want almost $5,000 in annual passive income? Then you need a company bound for even more growth, with a dividend…

Read more »