TransCanada Corporation (USA) (TRP) shares have been on fire in 2016. TRP stock is up 34% on the year, after hitting its lowest price in seven years earlier in January.
The company is well known in the United States as the owner of the Keystone Pipeline, an oil pipeline that has been the subject of much political debate. Despite President Barack Obama vetoing the Keystone XL Pipeline bill, TransCanada remains committed to getting the project done.
Republican Presidential hopeful Donald Trump recently put his support behind the pipeline … with conditions of course.
Donald Trump Brings TRP Stock Back to Life
Donald Trump gave a speech on energy in North Dakota recently. That speech highlighted Trump’s willingness to bring the Keystone pipeline deal back to the spotlight in exchange for a portion of the profits from TransCanada.
Many in the industry have criticized Trump’s money demands.
Experts say Trump is missing the positives for the United States brought from the proposed Keystone XL pipeline. The new pipeline would create construction jobs and also bring oil to the U.S. refiners. Trump demands profits since it is America’s land and “we’re making it happen.”
While there are arguments for both sides, the good news here is the proposal for the pipeline could at least be back on the table.
On the flip side, Democratic Presidential hopeful Hillary Clinton opposes the Keystone pipeline. Clinton chose to not give her opinion on the pipeline for several years before saying she opposes it back in September.
The Keystone XL Pipeline
The proposed Keystone Pipeline extension from TransCanada known as Keystone XL would be a 1,179 mile oil pipeline crossing six states. The states of Kansas, Nebraska, Oklahoma, Texas, South Dakota and Montana all supported the pipeline, citing the jobs and industry boom that would be caused.
The Keystone XL Pipeline went through seven years of studies and has been one of the most contested infrastructure projects ever attempted in America. Despite the results of studies and an analysis by the U.S. State Department citing no climate changes and minimal environmental impacts, the pipeline was rejected by President Obama on Nov. 6, 2015.
That comes after Congress approved the Keystone pipeline, passing the Senate 62-36 and House of Representatives 270-152.
TransCanada hasn’t taken too kindly to the Keystone pipeline being rejected. The company has said that it was denied approval despite a seven year process finding no negative impacts. On Jan. 6, the company announced legal action, citing the North American Free Trade Agreement. All six states involved with the pipeline have thrown their support behind the lawsuit.
TransCanada is seeking $15 billion on compensation.
Moving Beyond the Keystone Pipeline
While many Americans and investors associate TransCanada with the Keystone pipeline, there is much more offered from this company. The company has $64 billion in infrastructure assets in Canada, the United States and Mexico. This provides the company with solid earnings and cash flow.
TransCanada has 41,900 miles of natural gas pipelines, which supply 20% of the natural gas consumed daily in North America. The current Keystone Pipeline transports 20% of crude oil exports of Western Canada.
The strong earnings have translated into nice dividend growth for shareholders. The dividend has grown at an average annual rate of about 5% since 2000. Going forward TransCanada plans on increasing its dividend 8% to 10% annually.
TransCanada latest big project is Energy East, a project that would take crude oil coast to coast in Canada. The project already is becoming a political nightmare and may never see the light of day. However, Canada’s current Prime Minister Justin Trudeau has made energy a priority and many believe he will support this project, as he did the Keystone XL Pipeline.
In March, TransCanada announced plans to acquire Columbia Pipeline Group Inc (CPGX) in a $13 billion all-cash deal. The deal will give TransCanada a huge portfolio of infrastructure and also access to the Marcellus Shale gas region.
The acquisition also gives TransCanada better access to regions like the Midwest, Mid-Atlantic and Gulf Coast.
Bloomberg recently discussed how TransCanada is working on reducing its risk to major projects. The acquisition and smaller projects show the company’s focus on backing away from big politically sensitive projects.
While that is true to a sense and great for shareholders, there could still be lots of upside if Keystone XL or Energy East is ever approved.
Bottom Line for TRP
TRP stock just hit 52-week highs after bottoming out in January. The company’s last saw the $50 level in 2014. A nice dividend yield of 4.2% is currently enjoyed by shareholders. With plans to raise that amount 8% to 10% annually, the share price will likely go up as income investors come on board. The diversification away from big projects should continue to win investors.
And discussion of the Keystone XL by Donald Trump — or his presidential victory — could be underestimated catalysts by investors.