This stock’s growth strategy could produce steady gains for the conservative investor

Whether you’re an aggressive or conservative investor, we continue to recommend that you cut your investment risk by spreading your money out across the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities).

Generally speaking, stocks in the Resources and Manufacturing & Industry sectors expose you to above-average volatility, and stocks in the Utilities and Canadian Finance sectors entail below-average volatility. Consumer stocks fall somewhere in the middle.

Most investors should have investments in most, if not all, of these five sectors. The proper proportions depend on your circumstances and whether you’re an aggressive or a more conservative investor.

Utilities could play a bigger role for the conservative investor

If you’re an income-seeking or conservative investor, you may want to place more emphasis on Utilities. That’s because these firms’ operations (such as power plants and pipelines) generate steady cash flows that give them plenty of flexibility to pay dividends and invest in new growth projects. That helps cut their risk, and makes them well-suited to the conservative investor.

TransCanada Corp. (symbol TRP on Toronto), a company we’ve covered for many years in our Successful Investor newsletter, is a good example of a utility that’s fuelling growth through new projects. We analyze TransCanada’s strategy and update our buy/sell/hold advice in the current issue of The Successful Investor.

The majority of TransCanada’s revenue and earnings come from its 60,000-kilometre pipeline network. Through these pipelines, TransCanada pumps natural gas from Alberta to eastern Canada and the U.S. The company also owns or has stakes in 20 electrical-power plants in Alberta, Ontario, Quebec and the northeastern U.S.

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Long list of new projects brightens TransCanada’s outlook

The largest of TransCanada’s new growth projects is the Keystone pipeline, which will pump crude oil from Alberta’s oil sands to refineries in Illinois. This project will cost a total of $12 billion U.S. The first phase should start up later this year. The company plans to extend Keystone to the U.S. Gulf Coast in 2013.

TransCanada is also building a natural-gas pipeline in Wyoming, which should start operating later this year. It is also building two pipelines that will pump natural gas from the Horn River basin in northeastern B.C. to Trans-Canada’s main Alberta system. One will begin operating in late 2010, and the other should be ready in 2012.

The company is also investing in new power projects: It is refurbishing two reactors at the Bruce nuclear-power station in Ontario (TransCanada owns 48.8% of these reactors). The reactors should start operating in 2011.

High debt loads are common for utilities

TransCanada’s long-term debt of $18 billion seems high. However, high debt loads are common for utilities. That’s because steady cash flows from their operations give them plenty of flexibility to absorb the interest costs and invest in new projects.

TransCanada recently raised its quarterly dividend for the 10th straight year. The new annual rate of $1.60 a share yields 4.4%.

A wide range of stocks for the conservative investor

If you’re a conservative investor, TransCanada is one of several stocks you should be considering. You could pick others from the companies we recommend in our Conservative Growth Portfolio, which you’ll also find in the latest Successful Investor.

This portfolio gives you 30 of our top conservative selections divided by economic sector. As well, each stock carries our Successful Investor rating. (Our top rating is Highest Quality, followed by Above Average, Average and, at the bottom of the scale, Extra Risk.)

We recommend that conservative investors invest mainly in stocks from our “Average” or higher Successful Investor ratings, which make up the bulk of our portfolios.

You can get our full Conservative Growth Portfolio, our in-depth analysis of TransCanada and our latest buy/sell/hold advice on dozens of other stocks in the current issue of The Successful Investor. Best of all, you can get this issue absolutely free. Click here to learn how.