TransCanada has raised its dividend by more than 10 per cent. What’s more, the dividend may continue to grow at an average annual rate of eight to 10 per cent these next few years. Fortis made more than $1 billion in adjusted earnings for the first time in its history. It too has raised its dividend and plans annual dividend growth through 2022.
TransCanada Corp. (TSX—TRP; NYSE—TRP) achieved a record financial performance in 2017. Its base business performed well, it placed about $5 billion in new facilities into service, and it completed the integration of its Columbia assets. Acquired by the company in 2016, the Columbia Pipeline serves millions of customers from New York State to the Gulf of Mexico. Columbia’s gas transmission network consists of 12,000 miles of pipelines and 37 storage fields in four states.
TransCanada is a leader in the development and operation of North American energy infrastructure including natural gas and liquids pipelines, power generation and gas storage facilities. The company operates one of the largest natural gas transmission networks that extends more than 57,100 miles, tapping into virtually all major gas supply basins in North America.
For the year ended Dec. 31, 2017, TransCanada made $2.7 billion (adjusted), or $3.09 a share, compared with $2.1 billion, or $2.78 a share, in 2016.
Among the factors contributing to the increase was a higher contribution from US Natural Gas Pipelines due the additional earnings from the Columbia acquisition and higher transportation revenue from ANR, a midwestern pipeline, resulting from a regulatory settlement.
Based on this strong performance and continued growth, TransCanada has increased its quarterly dividend by 10.4 per cent to $0.69 a common share, payable on April 30. This is the 18th such annual increase.
More than 95 per cent of TransCanada’s EBITDA (earnings before interest, taxes, depreciation and amortization) comes from regulated or long-term contracted assets. The company wants to bring $23 billion in new facilities that will earn similar income into service over the next three years. This is expected to drive increased cash flow and earnings per share that should support eight to 10 per cent average annual growth in the dividend through 2021.
TransCanada’s shares trade at a reasonable 14.5 times the company’s expected 2018 earnings of $3.20 a share. The annual dividend of $2.76 a share yields an attractive 5.3 per cent and grows each year. Buy for growth and income.
Fortis reaches a milestone
Fortis Inc. (TSX—FTS; NYSE—FTS) is a leader in the North American regulated electric and gas utility business. The company serves utility customers in five Canadian provinces, nine US states and three Caribbean countries.
For the year ended Dec. 31, 2017, Fortis made $1.1 billion (adjusted net earnings attributable to common equity shareholders), or $2.53 a share, compared with $715 million, or $2.31 a share, in 2016. Earnings were driven by a full year of contribution at ITC, the US midwestern electric transmission company acquired in October 2016, lower corporate and other expenses, strong performance at Arizona gas and electric company UNS Energy, and higher earnings from Aitken Creek, a natural gas storage facility in BC.
In October, management declared a 6.3-per-cent increase in its quarterly dividend on its common shares to $0.425 a share. The company has targeted average annual dividend growth of about six per cent through 2022.
US tax reform is expected to reduce Fortis’ annual earnings per share by about three per cent, but it will also increase the company’s rate base growth by about 50 basis points. Consequently, management projects its rate base will grow at an annualized rate of five per cent these next five years, supporting growth in earnings and dividends. The shares yield 3.9 per cent. Buy for growth and income.
This is an edited version of an article that was originally published for subscribers in the April 6, 2018, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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