With Enbridge announcing a transformational deal with Spectra Energy today, shares of TransCanada (TSX:TRP)(NYSE:TRP), the other pipeline giant in Canada, sold off on the news. Shares were down more than 2% in mid-afternoon trading.
It’s obvious at least some investors are cycling out of what they view as weaker TransCanada shares and into the stronger Enbridge story. Remember, this isn’t the first bit of recent bad news for the company. President Obama vetoed TransCanada’s proposed Keystone XL expansion back in 2015.
But there’s still a lot to like about TransCanada. It recently announced its own big acquisition, pledging to spend US$13 billion to acquire Columbia Pipeline. It also has $25 billion in additional near-term growth projects and $45 billion planned over the long-term.
TransCanada also has substantial power assets with more than 10,000 MW of capacity spread out over 17 power plants across North America. More than 90% of output is contracted, meaning steady cash flows for shareholders.
It has also moved away from being exposed to commodity prices, with more than 90% of pipeline revenues from long-term take-or-pay contracts.
Dividend growth is expected to be strong for years to come as these growth projects come online. 2016’s dividend was already hiked from $2.08 per share to $2.26, and management has gone on record saying investors can expect similar hikes through 2020. The current yield is 3.8%.
