Friday, July 18, 2008

TransCanada Corp2

Since I started a review of this stock (TSX-TRP), I thought I might as well finish it before I move on. I note that a number of people have a buy rating on it and some with a hold rating (as they think it is overvalued). This is utility stock, from which you would expect slow growth and a good dividend. The Graham price is only $30.71, according to my calculations, but the current price is $38.36. So, I can see why they might think it is overvalued. Although, I see most analysts, what ever their rating, have a 12 month stock price of $43-$44. This is higher than current price, and also this stock provides dividends, with a current yield of 3.8%.

The following figures are based on 5 year averages to December 31 2007, the last Annual Report date. Revenues are increasing at 11% per year. Revenue increases are good as they what that will eventually push up the earnings. The Earnings per share (EPS) has increase by 8.5% per annum. The dividends have been increasing by just over 6% a year. This is good as it is better than inflation.

The cash flow is increasing at a health rate of 17% per year. The closing price is up on average, 16% per year. The book value has only increase by 8.6% per year, but you tend to get low growth in book value when a large portion of the earnings is paid in dividends. The payout ratio on this stock runs about 60%.

The Current asset/Current liability ratio is low at .76. This means that the current assets cannot cover the current liabilities. However, the Asset/Liability ratio is at a better 1.55. The current Return on Equity (ROE) is good at 12.6%. The Accrual Ratio at -.17%, and this is not bad ratio.

As I had noted previously, if you compare this stock with the TSX, you will see that it has not done as well as the TSX over the last 5 years, but has done as well as other Utility stocks. Part of the reason that charts show that this stock has not done was well as the TSX, is that the charts only take into account the stock price movements. They do not consider the dividend payments.

As for 2008, the dividend has already been increased by almost 6%. This is certainly a good sign. However, most people feel that the EPS will remain the same as or be slightly lower than for 2007. A lot of people feel that we are going to have slow or no market growth in the near future. If this occurs, the place to have your money is in dividend paying stocks that increase their dividends on a regular basis. This stock certainly fits that bill.

The only real negative on this stock is the low Graham Price. As in all stock, you have to way the negatives and the positives to see if a stock is suitable to buy or hold. All stocks will have some negatives. This has been a good stock for me and I will continue to hold it.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional.

See my spreadsheet on this company at (I have reloaded this spreadsheet because of new 2008 figures. See my website at for a list of the stocks for which I have put up spreadsheets on web site.

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