Earn a Near 5% Yield With TransCanada Corporation

TransCanada Corporation (TSX:TRP)(NYSE:TRP) is a stock you own for years without worry about the quarterly results.

| More on:

Looking at the yield a company is paying can often be a good indication of how the market is viewing that particular investment. And with the yield at nearly 5%, it’s clear that TransCanada Corporation (TSX:TRP)(NYSE:TRP) has experienced better days.

But that’s not all that surprising; TransCanada has given up 11.5% since mid-November.

Part of the problem is that TransCanada gives investors mixed signals. One quarter, the company had a mixed bag of good and bad news. The next quarter saw the company perform quite well, with management announcing a 10.4% boost to the dividend.

The fourth-quarter results were quite impressive. The company earned $861 million in profits compared to a $358 million loss a year prior in the fourth quarter. And full year, the company earned $2.997 billion compared to only $124 million in the prior year. All in all, the business is doing quite well.

That said, should you believe that the company is suffering or that the company is doing well?

This goes back to something I’ve often said about TransCanada: ignore the quarterly results. All in all, the business is in a very good position, but from time to time, the company may not execute perfectly. Or analysts might have unrealistic expectations, which happens with a lot of companies.

Instead, I would focus your energy on two key factors …

First, the growth prospects for the company are significant. In the near term, there is $22.7 billion in projects that are expected to come online in the next few years. When all is said and done, the expected carrying value will be $8.1 billion. Thus, I fully expect these projects to contribute to cash flow.

And long term, there is $23.9 billion in projects that, should they come online, could have a huge impact on the business. Nevertheless, management doesn’t know when they would come online and how much they would cost. So, we don’t focus on these as much.

Second, management is incredibly shareholder friendly.  As long as the business can generate cash flow to support the dividend, TransCanada will continue rewarding investors. Management is looking to boost the yield by 8% every year, so when the 10.4% increased was announced, I was quite pleased.

Ultimately, TransCanada is a solid company in a solid position. It might experience some turbulence, especially around the quarter, but that creates an opportunity to buy. At just shy of a 5% yield, I see little reason not to own this stock. And if you’re planning to hold for a long time, the reward with regard to dividends could prove significant.

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 of the stocks mentioned.

More on Dividend Stocks

growing plant shoots on stacked coins
Dividend Stocks

4 Ways to Grow $100,000 Into $1 Million in Retirement Savings

Anyone can build a million-dollar retirement portfolio. Here are four ways you could practically grow $100,000 to $1 million.

Read more »

A shopper makes purchases from an online store.
Dividend Stocks

3 Reasons to Buy TFI Stock Like There’s No Tomorrow

TFI stock (TSX:TFII) had a hard 2023, but now it's set up for a solid 2024, with an acquisition that…

Read more »

Dividend Stocks

5 Secrets of TFSA Millionaires

These lesser-known secrets can help you set up the perfect long-term portfolio and achieve a million-dollar TFSA!

Read more »

analyze data
Dividend Stocks

How to Build a Powerful Passive-Income Portfolio With Just $20,000

These fundamentally strong TSX stocks have paid and increased their dividend in all market conditions. Add these stocks to build…

Read more »

Canadian stocks are rising
Dividend Stocks

iShares S&P/TSX Capped REIT Index ETF (TSX:XRE): Why I Like this ETF Better Than a Rental Property

XRE is a great ETF for gaining exposure to the Canadian real estate sector.

Read more »

Payday ringed on a calendar
Dividend Stocks

3 High-Yield Dividend Stocks That Pay Cash Every Month

These three dividend stocks all offer high yields and have sustainable dividends, making them some of the best investments to…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

3 Stocks That Could Create Lasting Generational Wealth

If you want to start transferring over your wealth, you'll need to actually have some! And these are three stocks…

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

Down by 25%: Is Canadian Tire Stock a Buy in February 2024?

Take a closer look at this Canadian retail stock if you are looking for low-cost additions to your self-directed portfolio…

Read more »