Friday, April 16, 2010

TransCanada Corp 2

I would like to continue my talk about this stock (TSX-TRP) today. This is a stock I own. I bought this stock initially in 2000 and I bought more in 2006. Overall, I have made 11.8% per year, including dividends, on this stock. On my original investment in 2000, I am making over 12% in returns (I originally paid $11.95 a share and I get dividends of $.38 a share). For my 2006 investments, I am making a return of 4.6%. The stock’s current yield is 4%.

Looking at the Insider Buying and Insider Selling reports, I find that over the past year there has been some $22.5M of insider selling. For this company, insiders have more stock options than stocks. Insiders seem to be selling off their stock options as soon as they can. The good thing is the dividend increase. Because the dividend increase occurred after the 1st dividend was paid, the increase in dividends in 2009 over 2008 was 4.2%. They increased the dividend from $.36 a share to $.38 a share and this is an increase of 5.6%.

When I look at the 5 year average low P/E, I get a P/E of 13.5. The 5 year average high P/E is 17. The current at P/E 17.8 is historically speaking, rather high. If you look at the forward P/E, it comes in at a better place at 15.5. The Graham Price for 2009 of $33.14 is some 14% higher than the stock price. The stock price relationship to the Graham Price ranges from 25% higher to about the Graham Price. So, the current premium over the Graham Price is not bad. Both these values are based on earnings estimates.

The current dividend yield is 4%. The 5 year average is 3.9%. So the yield is slightly higher than the average and this is good. However, this points to a reasonable stock price, not a low one, as the average yield on the low price is just over 5%. The last thing to look at is the Price/Book Value Ratio. The 10 year average for this ratio is 1.95. The current one is 1.64, which is just less than 85% of the 10 year average. This is also good. These values are not based on estimates.

So, what do the analysts say? When I look at recommendations, I find Strong Buys, Buys and Holds. The most recommendations are Strong Buys. However, the consensus recommendation would be a Buy. (See my site for information on analyst ratings.) Analysts with the Strong Buy recommendations talks about the recent dividend increase and the fact that earnings came in, in 2009 over estimates. Analysts with Buy recommendations talk about earnings will be increasing in 2011 and later. Analysts with Hold recommendations feel that there is too much pipeline capacity in Western Canada.

Over the medium to long term, this stock seems to do about as well as the TSX, plus you get a good dividend yield. I intend to hold on to what I have. I have too much of this stock to consider buying anymore.

TransCanada is a leader in energy infrastructure. Their network of pipeline taps into virtually all major gas supply basins in North America. TransCanada is one of the continent’s largest providers of gas storage and related services. It is a growing independent power producer. Its web site is . See my spreadsheet at .

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 website for stocks followed and investment notes. Follow me on twitter.

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