canadian utilities

TRANSCANADA CORP. $37.50, Toronto symbol TRP, owns 50% of Broadwater Energy, a joint venture with Royal Dutch Shell, which hopes to build an offshore liquefied natural gas terminal in Long Island Sound. However, New York State and New Jersey have rejected the proposal. Broadwater now plans to appeal to the U.S. Commerce Department. The decision forced TransCanada to write off the $27 million it has already spent on the Broadwater project. If you exclude all unusual items, TransCanada’s earnings in the three months ended March 31, 2008 still rose 30.4%, to $326 million from $250 million a year earlier. Per-share earnings grew 22.4%, to $0.60 from $0.49, on more shares outstanding. Most of the higher earnings came from the acquisition of pipelines and natural gas storage facilities in February 2007. However, overall revenue fell 4.5%, to $2.1 billion from $2.2 billion, due to the temporary shutdown of a power plant in Quebec. TransCanada is a buy....

CANADIAN UTILITIES LTD. (Toronto symbols CU $48 (Class A) and CU.X $47 (Class B); Income Portfolio, Utilities sector; Shares outstanding: 125.4 million; Market cap: $6.0 billion; SI Rating: Above average) is a leading distributor of natural gas and electricity in Alberta. It has over 1 million customers in nearly 300 communities. The company also operates independent power plants in other parts of Canada, the UK and Australia. ATCO Ltd. controls about 74% of the company’s class B voting common shares. Among Canadian Utilities’ overseas investments is a 25.5% stake in the Barking power plant in London, UK. Due to the recent failure of a steam turbine, the plant will operate at 60% of capacity for the next 45 days. The outage will cut Canadian Utilities’ earnings in the fourth quarter of 2007 by $5 million to $10 million....

Falling interest rates have rekindled investor interest in high-yielding utility stocks, such as these five. All of them have a long history of increasing dividends. Unlike interest payments on bonds, dividends qualify for the dividend tax credit. As well, stocks offer you open-ended returns, so they can give you protection against inflation. Bonds can’t provide this protection, because they are fixed-return investments. We see all five of these utilities as buys for long-term gains and income. TRANSCANADA CORP. $39 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 540 million; Market cap: $21.1 billion; SI Rating: Above average) operates a 59,000-km network of natural gas pipelines in Canada and the United States. This business supplies 70% of its profit. The remaining 30% comes from its electrical power operations. TransCanada aims to cut its reliance on its regulated pipeline business with new growth projects. These include the Keystone pipeline, which will transport crude oil from Alberta’s oil sands to the U.S. Midwest. Initial deliveries should begin in late 2009....

BANK OF MONTREAL $54.32, Toronto symbol BMO, has announced several charges that will cut its earnings when it reports results for its first fiscal quarter ended January 31, 2008. The charges will total about $325 million or $0.70 a share, and consist mainly of writedowns of asset-backed securities and higher loan loss provisions. The bank earned $2.9 billion or $5.66 a share before unusual items in fiscal 2007. Bank of Montreal has now pledged roughly $12 billion U.S. to support two of its structured investment vehicles holding asset-backed securities. The extra liquidity should help them dispose of these assets in an orderly manner. These assets have minimal exposure to U.S. subprime mortgages, and Bank of Montreal feels the risk of loss is low. While the possibility of further writedowns adds risk, Bank of Montreal remains well capitalized....

BCE INC. $36.29, Toronto symbol BCE, is trading nearly 15% below the $42.75-a-share takeover offer it accepted in July 2007. This is partly because several institutional holders of BCE bonds have launched a class-action lawsuit to oppose it. BCE’s plan to take on more debt has hurt the value of their holdings. If the suit succeeds and forces BCE to compensate the bondholders for their losses, the Ontario Teachers’ Pension and its partners may decide to abandon the takeover. Liquidity problems in the debt markets could also scuttle the takeover, since that could hurt the ability of the takeover consortium to issue new bonds. This group has also lined up loans from several banks, but recent writedowns of U.S. subprime mortgages have raised fears that these banks may withdraw or cut their involvement. However, lower interest rates will cut the buyers’ costs. The drop in BCE suggests that the takeover is unlikely to go through. But at the current reduced price, BCE is once again an attractive buy for income and growth....

CANADIAN UTILITIES LTD. (Toronto symbols CU $46 (Class A) and CU.X $46 (Class B); Income Portfolio, Utilities sector; Shares outstanding: 125.4 million; Market cap: $5.8 billion; SI Rating: Above average) earned $0.64 a share in the second quarter of 2007, up 16.4% from $0.55 a year earlier. A cooler-than-usual spring in Alberta, which helped spur strong demand and prices for natural gas, offset higher operating costs. Revenue, however, fell slightly to $560.3 million from $563.4 million. Revenue should improve in the second half as electricity demand in Alberta grows. Canadian Utilities is a buy. The more liquid class ‘A’ non-voting shares are the better choice. MANITOBA TELECOM SERVICES INC. $47 (Toronto symbol MBT; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 64.6 million; Market cap: $3.0 billion; SI Rating: Average) continues to benefit from a restructuring and its strategy to expand its fast-growing wireless and Internet operations. It earned $0.79 a share before unusual items in the second quarter, up 16.2% from $0.68 a year earlier. Revenue fell 1%, to $474.1 million from $479.1 million. But if you disregard the loss of two former customers of its Allstream business communication division, revenue would have increased by 1.7%....

CANADIAN UTILITIES LTD. $47 (Toronto symbol CU) has raised its dividend each year since 1972. The new annual rate of $1.26 a share yields 2.7%. Thanks to higher electricity rates and gains from its natural gas storage operations, first quarter profits rose 57.4%, to $1.07 a share from $0.68 a year earlier. Buy. EMERA INC. $21 (Toronto symbol EMA) earned $0.36 a share in the three months ended March 31, 2007, down 10% from $0.40 a year earlier. A large industrial customer of subsidiary Nova Scotia Power recently resumed operations, which increased electricity sales. However, the extra revenue failed to cover the higher initial production costs. This a short-term setback, and should not hurt Emera’s $0.89 dividend, which yields 4.2%. Buy. PENGROWTH ENERGY TRUST $19 (Toronto symbol PGF.UN) paid out 92% of its cash flow in distributions in the first quarter of 2007, which is higher than comparable energy trusts. But that’s largely due to the timing of recent acquisitions. Pengrowth’s payout ratio in 2007 should average around 87%. It currently pays monthly distributions of $0.25 a unit (15.8% yield). Buy.

CANADIAN UTILITIES LTD. (Toronto symbols CU $42 (Class A) and CU.X $42 (Class B); Income Portfolio, Utilities sector; Shares outstanding: 125.4 million; Market cap: $5.3 billion; SI Rating: Above average) is a leading supplier of natural gas and electricity in Alberta. It has 970,000 gas customers, and 216,000 electricity customers. It also operates power plants in other parts of Canada, as well as in the UK and Australia. ATCO Ltd. controls about 74% of the company’s class B voting common shares. In the past few years, Canadian Utilities has sold many of its unregulated operations. That hurts its growth prospects, but also limits its overall risk. It now gets about half of its revenue and income from regulated operations....

The move to deregulate electricity markets in the past decade has spurred many utilities to sell their power on the open market, instead of at predetermined rates. While that helps their growth, it also increases volatility. Here are three utilities that prefer regulation, since it helps guarantee their profits. Operating in regulated markets also helps keep out competitors, and gives them plenty of cash for dividends. We see all three as buys, particularly for income-seeking investors....

CANADIAN UTILITIES LTD. $46 (Toronto symbol CU; Income Portfolio, Utilities sector; SI Rating: Above average) has abandoned its plan to convert its unregulated gas processing and storage businesses into income trusts after Ottawa changed the taxation rules of trusts. The company will probably hang on to these assets instead of selling them. Now that the trust plan is dead, Canadian Utilities will probably use its growing cash balances ($5.85 a share) for acquisitions. Thanks to the new tax rules, which have hurt the prices of many oil and gas trusts in Alberta, the company could pick up some bargains. It could also raise its $1.16 dividend, which yields 2.5%. Canadian Utilities is a buy....