Monday, March 19, 2012

TransCanada Corp 2

I own this stock (TSX-TRP). I first bought this stock in 2000 and then bought more in 2006. I have a Total Return of 12.24% per year. Of that total return, some 5.07% per year is attributable to dividends. That is some 41.5% of my return on this stock is attributable to dividends.

When I look at insider trading, I find lots of insider selling to the tune of $34.6M and a bit of insider buying. Net insider selling is $34M. Everyone has more stock options than shares. The selloff seems to be of stock options. Directors do not have stock options per se, but have deferred share units, and from what I can see these are more common that actual shareholdings.

There are 516 institutions holding 61% of the shares of this company. Over the past 3 months they have been quite active in buying and selling shares in this company. Over this period they are marginally (less than1%) decreased their investment in this company.

I get 5 year median low and high Price/Earnings Ratios of 15.40 and 18.07. The current P/E ratio of 18.63 would suggest a high stock price. (Note also, the 10 year median high P/E ratio at 16.62 is lower than the 5 year median high P/E Ratio.

I get a Graham Price of $36.23 and the stock price of $44.16 is some 21.9% higher. The median and high difference between the Graham price and stock price is the stock price being 10.7% and 25.24% higher than the Graham Price. By this measure, the current stock price is towards the high side.

I get a 10 year median Price/Book Value of 2.06 and the current P/B Ratio of 1.79 is some 13% lower. This would point to a reasonable stock price. The 5 year median dividend yield is 4.11% and the current yield of 3.8% is 7.5% lower. This would point to a rather high stock price, considering the 10 year median low dividend yield is at 3.78%.

So the current stock price is not cheap, but the relative stock price has also been higher. All my test suggest a rather high current stock price and it is only the P/B Ratio that suggests anything different and it suggests a reasonable stock price.

When I look at analysts’ recommendations, they are all over the place. I find Strong Buy, Buy, Hold, Underperform and Sell recommendations. Most are in the Hold category and the consensus would be a Hold recommendation.

A few analysts are worried about Keystone and most think it will turn out ok. One analyst with a Hold says to wait until this is resolved because the stock will go nowhere until it is. A couple of Buy analysts say that it is a long term buy. A number of analysts remark that it is a safe stock with a safe dividend.

Dividend Watchdog talks about another dividend increase from TransCanada. Dividend Ninja asks “Why Do Utilities Have Such High Debt and High Payout Ratios?”. My Own Advisor also talks about TransCanada’s dividend increase. Cash Money 101 also talks about owning TransCanada.

For an article in Money Morning by Kerri Shannon on building the Keystone pipeline, click here.

This is considered to be a utility stock. This would be a stock for a conservative investor who wants to hold a steady and reliable stock in their portfolio. If you are living off your dividends like I am, this stock will provide a good dividend yield and moderate dividend growth. Dividend growth should at least be a few 100 basis points above inflation.

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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