Tuesday, March 29, 2011

TransCanada Corp 2

I first bought this stock (TSX-TRP) in 2000. I bought more shares of this company in 2006 and my total return to date is 11.5% per year. Approximately 5% of this return would be in dividend income. The growth potential of dividends for this company at a 5% increase would be 7% after 10 years. The current dividend yield is 4.3%.

When I look at Insider Trading, I find net Insider Selling at $25M. Insider buying is so minor that it is not worthwhile to report. All the selling seems to be of stock options. This company’s insiders, except for Directors, have more options than shares. However, this selling is less than .1% of the market value of this stock. This company has just raised their dividend by 5%. It is a cautious move and it still lowers the the expected payout ratios from earnings to 73% from 89% and payout from cash flow to 33% from 36%. It shows the management of this company has faith in the future earnings of this TransCanada.

My spreadsheet gives me an 5 year median low Price/Earnings Ratio of 14 and a 5 year median high P/E of 18. I get a current P/E ratio of 17 based on 2011 expected earnings. For 2011, I get a Graham Price of $35.03 and this is 11% lower than the current stock price of $38.90. Over the past 5 years, the average stock price has been 14% above its applicable Graham Price. (See my site for information on calculating Graham Price.) The P/E Ratio shows a higher than average stock price and the Graham Price comparison show a lower than average stock price.

When I look at the Price/Book Value Ratios, I get a 10 year average of 1.96 and a current one of 1.62. The current P/B Ratio is 83% lower than the 10 year average. This shows a relatively good price. The current yield is 4.3% and the 5 year average is 4%. So this shows a better than average price. All this shows a relatively average price and this is probably the best you can hope when buying a stock.

When I look at analysts recommendations, I find lots of Strong Buy, a few Buy and then fewer Hold recommendations. The consensus recommendations would be a Strong Buy. (See my site for information on analyst ratings.) Analysts saying the stock is a Buy, give a 12 months stock price around $42.25. One analyst recommended buying this company for income and said it was North America’s premier pipeline company.

A number of analysts pointed out that the company has shown very solid results in the 4th quarter for 2010. Another acknowledged that this company has had recent bumpy ride, but feel the company’s future is bright. At Option Matters blogger Richard Croft talks about opportunities for TransCanada. Analysts with Strong Buy recommendations talk about this company being a big blue chip utility and a core holding. An analyst with a Buy recommendation feared there might be some dilution in this stock because of future capital spending. An analyst with a Hold recommendation liked other stocks, like Enbridge (TSX-ENB) and Inter Pipeline (TSX-IPL) better and because he thought TransCanada was expensive at the moment.

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 here TransCanada. See my spreadsheet at trp.htm.

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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