Friday, March 16, 2012

TransCanada Corp

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.

Dividend growth over the past 5 and 10 years has been at 5.3% and 6.3% per year, respectively. These are decent increases when you consider inflation has been running at 2% per year over the past 5 and 10 years. The 5 year median Dividend Payout Ratios are 71% for earnings and 31% for Cash Flow. The DPR for the 2011 were 76.5% and 30% for earnings and cash flow. (See my site for information on Dividend Payout Ratios).

This company has been increasing their dividend each year since 2001. They reorganized around 1999 and cut the dividend. I bought this stock just after the second dividend cut in 2000. The company had a plan, but the stock price was hammered by the dividend decreases. Buying a stock when it was out of favor affected my long term return. Without this purchase, my total return would be 9% per year.

Using the current dividend yield of 3.8%, if you purchase this stock you could reasonably expect to be earnings around 5% after 5 years and 6.5% after 10 years on your original purchase price. For my stock purchased in 2006, 6 years ago, I am earnings 5% on the original purchases. For my purchase in 2000, 12 years ago, I am earnings 14% yield on the original purchase price.

The total return on this stock if purchased 5 and 10 years ago would be 5.4% and 13.08% per year, respectively. The portion attributed to dividends would be 3.5% and 5.6% per year, respectively. The portion of the return attributable to dividends would be 76% and 36% per year, respectively. This is, of course, an estimate. What you would actually earn depends on what you paid for the stock and that price can vary a lot within a year.

Shares have increased over the past 5 and 10 years at the rate of 7.6% and 4% per year respectively. Money was raised for capital expenditures and acquisitions. They are also issuing a small number of shares under a DRIP plan and because of stock option. This means that growth and growth per share is different. As a shareholder you are, of course, interested in growth per share.

For example, revenue has grown over the past 5 and 10 years by 4% and 5.7% per year, respectively. However, revenue per share has declined over the past 5 by 3% per year. Revenue per share over the past 10 years has grown at the rate of 1.6% per year. The first figures show moderate growth, the second figures show not much growth at all.

Growth in cash flow has been moderate to good. The 5 and 10 year growth in cash flow per share is 5.4% and 9.9% per year, respectively. Growth in Book Value per share has been fine with 5 and 10 year growth at 7.3% and 8% per year, respectively.

The current Liquidity Ratio is low at 0.62 and it has generally been low. However, if you exclude the current portion of long term debt, the ratio is better at 1.20. The current portion of long term debt has been handled. The current Debt Ratio is good at 1.62 and it generally has been good as the 5 year median ratio is also at 1.62. The first ratio looks at current liabilities and current assets and the second ratio looks at liabilities and assets.

Current Leverage and current Debt/Equity Ratios are fine at 2.83 and 1.75. They are better than the 5 year median ratios at 3.05 and 2.01. These ratios compare book value to liabilities and to assets, respectively.

The Return on Equity is moderate at 9.9% for the end of 2011. The 5 year median ROE is the same at 9.9%. The ROE based on Comprehensive Income is similar with the ROE for end of 2011 at 9.7% and the 5 year median also at 9.7%.

This is a great stock for a conservative portfolio and would also be good for a riskier portfolio to balance the risk level. 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.

On Monday, I will look at what the analysts say about this stock and also what my spreadsheet tells me about the current stock price.

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.

1 comment:

  1. I own this stock too :)
    The dividend yield is ok, I guess.
    Its quite nice to know you had made more than 12% per year on this one. Very impressive.