TransCanada (TRP 0.03%) is a dividend lovers' dream stock. The Canadian pipeline giant has increased its payout for 18 straight years, including 10.4% for 2018, and it now yields nearly 5%. There's still plenty more growth coming down the pipeline given its forecast that the company can increase the payout at an 8% to 10% annual rate through at least 2021. That outlook is among the best in its peer group.
The company, however, could further improve its long-term dividend growth visibility when it reports first-quarter results this week. That's because the company could unveil new expansion projects, as well as firm plans on those in development, either of which would increase the likelihood that it can continue growing the payout at a healthy rate well past its current forecast.
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A burgeoning backlog
TransCanada currently has 23 billion Canadian dollars ($17.9 billion) of growth projects under way. While the company did finish CA$5 billion ($3.9 billion) in expansions last year, it has more than replaced those by adding CA$3 billion ($2.3 billion) of new ones in 2017 and securing another CA$2.4 billion ($1.9 billion) project earlier this year. As a result, it currently has a larger backlog than Canadian rival Enbridge, which recently had CA$22 billion ($17.1 billion) of capital spending ahead of it through 2020.
TransCanada's most recent addition to the backlog was a CA$2.4 billion ($1.9 billion) expansion of its NGTL system in western Canada, which will provide increased market access for gas producers in the region. The company should finish the project in phases starting in late 2020 through early 2021, which will help fuel the 2021 dividend increase. Meanwhile, due to strong demand for additional capacity, the company recently announced another $120 million expansion of that system, adding some extra fuel to increase the dividend. It's possible that the pipeline giant could add even more projects like these when it reports results this week.
Two major projects to watch
In addition to the smaller and medium-sized expansions TransCanada has added over the past year, the company has two even larger projects in development that could move the needle much further in the future. That's why investors should keep an eye out for what the company has to say about these projects when it reports results.
The biggest is the proposed Keystone XL pipeline. In January, the company announced that it had received enough commercial support to move forward with this once left-for-dead project. At an estimated $8 billion investment, it would add significant future cash flow. While the company hasn't yet added it to the backlog, it's getting close. In fact, the company believes it could start construction next year, which would put the line in service two years later.
That timeline has become increasingly important due to the recent announcement that Kinder Morgan could pull the plug on its Trans Mountain Pipeline expansion. While Canadian Prime Minister Justin Trudeau has said that "this pipeline will get built," Kinder Morgan won't move forward unless it has a firm timeline and adequate protection of its investment. If it doesn't get those, Keystone XL would be the last remaining option for the industry to add incremental pipeline capacity out of Canada other than Enbridge's Line 3 Replacement program, which is already under way. That makes Keystone XL vitally important not just for TransCanada but also the industry, which is why investors should see if the company has enough confidence in moving forward to add it to the backlog.
Another large project to keep an eye on is the CA$4.8 billion ($3.7 billion) Coastal GasLink, which the company would develop to support LNG Canada, a natural gas export facility Royal Dutch Shell hopes to build in British Columbia. While Shell has yet to make a final investment decision on that project, Reuters recently reported that the company placed a $14 billion order with contractors to design and build the facility, indicating that Shell and its partners were indeed moving ahead with it. Given that report, investors should see if TransCanada has an update on Coastal GasLink.
If TransCanada moves forward with both projects, it will significantly increase the company's ability to continue growing its dividend at a healthy pace for the next several years.
Hoping for even more clarity
TransCanada already boasts one of the top dividend growth forecasts in the sector at 8% to 10% annually through 2021, which is one year more than Enbridge's 10% annual pace through 2020. However, the company could push that forecast even further out into the future by announcing that it secured several more expansion projects, as well as officially adding Keystone XL or Coastal GasLink to the backlog. Doing so would make it an even more attractive option for income-seeking investors.
