TRANSCANADA CORP. $33 – Toronto symbol TRP

TRANSCANADA CORP. $33 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 624 million; Market cap: $20.6 billion; Price-to-sales ratio: 2.3; SI Rating: Above Average) operates a 59,000-kilometre pipeline network that pumps natural gas from Alberta to eastern Canada and the U.S. It also owns or invests in 20 electrical power plants.

To diversify its operations, TransCanada is building the $12-billion U.S. Keystone pipeline, which will pump crude oil from Alberta’s oil sands to refineries in Illinois. TransCanada has already signed contracts with oil shippers at an average term of 18 years. In total, these deals represent 83% of Keystone’s capacity.

The new pipeline’s first phase should start operating early next year. TransCanada plans to extend Keystone to the U.S. Gulf Coast by 2012.

The company has also won an exclusive license to build a new $26-billion U.S. pipeline that will pump natural gas from Alaska’s north shore to Alberta. From there, TransCanada would ship the Alaskan gas through its existing pipelines to markets in Canada and the U.S.

ExxonMobil Corp. (New York symbol XOM), which owns major untapped gas fields in northern Alaska, has agreed to become a minority partner in this pipeline, which could begin operating in 2018.

These projects will probably add to TransCanada’s $17.5-billion long-term debt, which is equal to 85% of its market cap.

However, high debt loads are common for utility companies. That’s because their steady cash flows give them plenty of room to absorb the interest costs and invest in growth projects. Their high-quality assets also make it easier for them to issue new equity, as TransCanada did last June when it sold $1.8 billion of new common shares.

The dilution caused by these extra shares will limit TransCanada’s per-share earnings growth to $2.07 a share this year. The stock trades at a reasonable 15.9 times that estimate. The $1.52 dividend yields 4.6%.

TransCanada is a buy.