The Motley Fool

Big Changes Ahead for This Top Dividend Stock

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On May 3, shareholders of TransCanada (TSX:TRP)(NYSE:TRP) will be asked to approve a special resolution to change the name of the company to TC Energy. The name change reflects the company’s future growth plans to increase the number of projects and employees throughout the U.S. and Mexico as well as Canada. Now in its 65th year in operation, TransCanada aims to be the leading energy infrastructure company in North America.

Dividend champion

TransCanada is a true dividend champion. In February, the company increased its dividend for the 19th consecutive year to 4.9%. In addition to the steady dividend increases, the company has returned an average annual total return of 12% for the past 19 years.

TransCanada posted record performance in 2018. The company’s $100 billion infrastructure portfolio generated $8.5 billion EBITDA. Approximately 95% of the earnings are attributed to rate-regulated businesses or long-term contracted assets, which produce a perpetual profit stream.

Stable business model

The company operates three complementary energy infrastructure businesses: natural gas pipelines, liquids pipelines, and energy.

TransCanada maintains nearly 100,000 kilometres of natural gas pipelines which supply more than 25% of the natural gas consumed daily in North America. This system relies on two of the most prolific and lowest-cost basins in Canada. The company also operates one of Canada’s largest natural gas storage businesses, with 650 billion cubic feet of storage capacity.

The company oversees a liquids pipeline system which runs almost 5,000 kilometres. This system connects Canada’s oil supplies to key markets and refineries. One of the initiatives, the Keystone pipeline, delivers 20% of western Canada’s oil exports.

Through its network of power generation facilities, the company can provide up to 6,600 megawatts of power, enough power to supply electricity to more than six million homes.

Keystone XL pipeline

The Keystone XL pipeline is the fourth phase of the company’s Keystone pipeline, which supplies oil from Alberta to the Midwestern U.S. This extension of the pipeline has been a politically charged topic for the past several years. From an economic perspective, Keystone XL is an important project for Canada and the U.S.

In 2015 , the U.S. State Department rejected TransCanada’s bid to build the pipeline. However, the current political climate in the U.S. appears to have shifted to be more favourable of the expansion. The Trump administration overturned the decision from the U.S. State Department.

TransCanada’s executives remain committed to obtain the regulatory and legal approvals necessary to move forward on the Keystone XL. Once the extension is completed, the pipeline will ship 500,000 barrels of oil a day for a period of 20 years. Upon completion of the project, the company’s potential returns should increase significantly.

The bottom line

Despite the uncertainty surrounding the Keystone XL expansion, TransCanada is a prosperous company. The company’s stable business model has consistently provided growing returns for its shareholders. As confirmed with the new name, the company’s plans to expand its footprint in North America should ensure this growth will continue well into the future. This forecast, plus the lengthy track record of dividend increases, makes TransCanada an attractive choice for investors.

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Fool contributor Cindy Dye owns shares of TRANSCANADA CORP.

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