While TransCanada (TRP +1.74%) is one of the largest energy infrastructure companies in North America, most American investors don't know it that well since it's a Canadian company. That's a shame because it operates a stable business that generates steady cash flow, making it an excellent stock for dividend investors and retirees. Given that the company isn't well-known here in the states, it's likely that most investors don't know these five important facts.
No. 1: It all started with one pipeline
TransCanada initially got its start in 1951 when it formed to develop the TransCanada Pipeline (now known as the Canadian Mainline). That pipeline would supply eastern Canadian markets with natural gas produced in western Canada. While construction of the pipeline didn't begin until 1956, the company completed it only two years later. The Canadian Mainline is still in operation today and remains a vital part of TransCanada's portfolio, supplying it with more than 1.1 billion Canadian dollars ($830 million) of earnings before interest, taxes, depreciation, and amortization (EBITDA) last year, or about 17% of total earnings.
Image source: Getty Images.
No. 2: On any given day, it's responsible for moving a quarter of North American gas demand
TransCanada currently operates 56,900 miles of gas pipeline across North America. These pipelines transport 23 billion cubic feet of natural gas per day across the continent, which represents 25% of continental demand. That business is also the company's biggest moneymaker. Both its market share and cash flow are poised to grow over the next few years because the company is investing billions to increase the capacity of its system. Notable investments include CA$5.1 billion ($3.9 billion) into expanding its NGTL system in western Canada, $7.1 billion to grow its recently acquired Columbia Pipeline business in the U.S., and $2.5 billion to construct new pipelines in Mexico.
No. 3: It handles 20% of the oil exports out of western Canada
The company also operates a premier liquids pipeline system, consisting of 2,700 miles of pipeline that ship 545,000 barrels of crude per day, including transporting about 20% of western Canadian oil exports. What's worth noting about that system is that it's relatively new to TransCanada since it didn't enter the oil pipeline business until 2010 when it completed the construction of phase one of its Keystone Pipeline System. Because of that, it's well behind Enbridge (ENB +1.13%) when it comes to moving oil, since its rival transports 2.8 million barrels per day across North America, which represents 28% of all the oil produced in North America. That said, TransCanada's oil pipeline business could grow rapidly in the coming years if it moves forward with its two transformational oil pipeline projects: the CA$15.7 billion ($11.9 billion) Energy East that would go across Canada and the $8 billion Keystone XL in the U.S.
No. 4: It generates enough electricity to power 6 million homes
While known as an oil and gas pipeline company, TransCanada has been in the power generation business since 1990 and operates several conventional and renewable power-generating facilities. Overall, it produces enough electricity to power 6 million homes. One of its largest generating stations is the Bruce Power nuclear plant, which supplies 30% of Ontario's electricity. The company recently entered into an agreement to invest CA$5.3 billion ($4 billion) in extending that plant's life until 2064, which would give it nearly a century of operating life.
No. 5: It has increased its dividend 17 years in a row, with more increases on the way
TransCanada's pipeline and power business generate very predictable income, which gives it plenty of cash to pay a generous dividend and help finance growth projects. In fact, the company has increased its payout for 17 years running -- by a 7% compound annual growth rate. That growth has yielded exceptional returns for investors, with the company delivering a 14% compound annual total return since 2000. Even better returns could be on the way in the future since the company boasts one of the largest growth project backlogs in the industry, which TransCanada expects will fuel 8% to 10% annual dividend growth through 2020. While that's a bit behind industry leader Enbridge's 10% to 12% annual growth rate through 2024, it's still among the top forecasts in the industry.
Investor takeaway
TransCanada plays a vital role in the energy infrastructure sector, moving a significant portion of the continent's oil and gas each day, while also generating a meaningful amount of power. That said, many investors overlook this giant because it's a Canadian entity. That's causing them to miss out on the opportunity to invest in an excellent company that pays a generous dividend, which it has the visibility to grow at a healthy clip for the next several years.
