TransCanada Corporation (TSX:TRP)(NYSE:TRP) is in the news again, because Nebraska effectively approved the Keystone XL pipeline — a major hurdle that the company needed to overcome to get this project in place. Investors are obviously happy, sending shares up on the news.
However, the news is a mixed bag.
This approval could be a big win for TransCanada, which originally didn’t have approval when President Obama was in office, but it saw that reverse when Trump took the White House. However, the Nebraska commission did not approve the preferred route — they want it farther east.
This creates a problem for two reasons. First, this will make the project more expensive and complicated, because it will require dozens of landowners to be consulted and potentially bought out of their property. Second, South Dakota warned that it might opt to review the pipeline again if another state made changes to the route.
It kind of feels like we’re getting mixed signals here on the Keystone XL pipeline and, it seems that every time this project takes one step forward, it also takes a step back. So, what should investors be thinking when it comes to this project?
Keystone is incredibly controversial, and there have been battles for years now by environmental groups fighting against the project. And South Dakota might look to temporarily revoke the licence for the Keystone XL project because of 5,000 barrels of oil spilled in the state.
Then there were the company’s third-quarter results, which were mixed. Comparable earnings for the quarter were $614 million, down from the $622 million that the company generated in the same quarter last year. But TransCanada reduced its operating expenses by $1.5 billion, which is obviously a big win for the company. Again, those are mixed signals on whether this was a good or bad quarter.
And finally, looking forward, there’s the expected $1 billion after-tax charge related to the cancellation of the Energy East pipeline that will hit the fourth-quarter results. In the short term, this hurts, but frankly, it’s not a long-term problem for TransCanada. Nevertheless, pundits will make a lot of noise about it.
Let’s distill all of this into a basic thesis to get rid of these mixed signals:
TransCanada might very well get the approval it wants for the Keystone XL pipeline, which would be a big win. However, nothing is for certain yet. It is also going to have a rough Q4, which might pull the stock down a bit.
However, as I have said in the past, you don’t buy TransCanada for the quarterly movements; instead, you buy it for the quarterly dividends. I fully expect the dividend to continue growing because of the multitude of projects TransCanada is working on — and these are far less political than Keystone.
Oil transportation remains a must, and, until Elon Musk obviates oil, TransCanada is going to be a must-own stock.