TransCanada Pipelines (revised Feb 17, 2000)
The marketplace is fickle. A few months ago, TransCanada was recommended by just about every analyst at prices over $20. Now with TRP's price nearly half that figure and much the same yield, few are recommending purchase of stock in Canada's largest pipeline company.
Analysts are irked. After promising not to, TCPL trimmed the quarterly dividend from 28¢ to 20¢. However, as far as TransCanada's core business goes, there has been little substantive change. For the year ended December 31, 1999, earnings, before extraordinary writedowns of $581 million and restructuring costs of $108 million, were $1.10 versus $1.21 in 1998.
As I write this, TRP is trading just above $10. I think TCPL has been overly discriminated against
and is good value*. It's going to be a while before TransCanada's dividend is increased or before
TransCanada catches the market's fancy again: the divestitures have robbed TCPL of its persona
as a growth company. Nevertheless, the yield is a solid 7.3%...equivalent to an interest rate of
9.6%. "If you own a stock where the negatives are largely known", John Neff says on page 92 of
John Neff on Investing, " then good news that comes as a surprise can have outsized effects." Or
again on page 64, "If you buy stocks when they are out of favour and unloved, and sell them into
strength when other investors recognize their merits, you'll often go home with handsome profits.
*There are other energy utilities offering good value too. These were addressed in my February 2000 report. Look for: good current yield, a yield above long term average yield, recent dividend increase, good dividend growth record, significant price decrease from spring of 1998 high price.
Go to: Time to Buy Energy Utilities - Feb 2000
Go to more February report - asset allocation on retirement