transcanada

Our view on a Canadian solar stock that has new power plants and long-term contracts but remains dependent on government subsidies.

IMPERIAL OIL LTD., $46.95, Toronto symbol IMO, has started up the second phase of its Kearl oil sands project in northern Alberta. The company owns 71% of Kearl; ExxonMobil (New York symbol XOM) holds the remaining 29%. Exxon also owns 69.9% of Imperial. Kearl’s first phase began operating in April 2013 and produced an average of 95,000 barrels a day (67,000 to Imperial) in the three months ended March 31, 2015. Imperial’s share of Kearl’s output represented 20% of the company’s overall production of 333,000 barrels. This new phase will ultimately double Kearl’s capacity to 220,000 barrels a day (156,200 to Imperial). The company spent $9 billion on the expansion, which is equal to 23% of its $39.8-billion market cap (or the value of all of its outstanding shares). However, Kearl’s reserves should last 40 years....

Canadian Solar Inc., $33.18, symbol CSIQ on Nasdaq (Shares outstanding: 55.7 million; Market cap: $1.8 billion; www.canadiansolar.com), is an Ontario-based designer, maker and seller of solar modules, which convert sunlight into electricity. Its products are used in a range of residential, commercial and industrial power-generation systems. The company makes solar modules at plants in China, as well as two facilities in Ontario. To cut its reliance on solar modules, Canadian Solar has moved into designing and building solar power plants. It then resells these facilities to utilities, such as TransCanada Corp., or operates them itself under long-term power-purchase contracts. In 2014, this business supplied 45% of Canadian Solar’s revenue....

With $44 billion earmarked for new projects, Enbridge builds up its cash flow and keeps our rating as one of Canada’s best dividend stocks.

While the Keystone XL pipeline earns headlines, TransCanada’s investors continue to earn steady dividend income as new projects unfold.

TRANSCANADA CORP. $53 (Toronto symbol TRP; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 709.0 million; Market cap: $37.6 billion; Priceto- sales ratio: 3.8; Dividend yield: 3.9%; TSINetwork Rating: Above Average; www.transcanada.com) operates a 68,000- kilometre pipeline network that pumps natural gas from Alberta to Eastern Canada and the U.S. The company’s pipelines supply 20% of North America’s natural gas needs. In 2014, they provided 48% of TransCanada’s revenue and 53% of its earnings.

The company also owns or invests in 21 power plants in Alberta, Ontario, Quebec and the northeastern U.S. In all, these facilities have over 11,800 megawatts of generating capacity. This division supplies 37% of revenue and 26% of earnings.

The remaining 15% of TransCanada’s revenue and 21% of earnings comes from its oil-pipeline division, which it started up in 2011. This business mainly consists of the Keystone pipeline, which pumps crude from Alberta to refineries in Illinois, and a distribution hub in Cushing, Oklahoma. Keystone accounts for 20% of Canada’s crude exports to the U.S.

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TRANSCANADA CORP. $56.04 (Toronto symbol TRP; Shares outstanding: 708.9 million; Market cap: $40.4 billion; TSINetwork Rating: Above Average; Dividend yield: 3.7%; www.transcanada.com) has announced a new deal with Magellan Midstream Partners (New York symbol MMP). The two firms have formed a 50/50 partnership to build a pipeline connecting their oil-storage facilities in Houston, Texas. This will give TransCanada’s oil-shipping clients access to more refineries in the Houston area. The company’s share of the $50-million cost is $25 million. To put that in context, TransCanada earned $511 million, or $0.72 a share, in the three months ended December 31, 2014. The partners expect to complete this project in mid-2016....

Alberta’s new NDP government plans to withdraw the province’s support for TransCanada Corp.’s Keystone XL pipeline, which would pump crude oil to the U.S. Gulf Coast. But Keystone XL is just one of many new projects the company is working on. And as these developments come onstream, the cash flow they generate will fuel TransCanada’s plan to hike its dividend by at least 8% annually through 2017. TRANSCANADA CORP. $53 (Toronto symbol TRP; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 709.0 million; Market cap: $37.6 billion; Priceto- sales ratio: 3.8; Dividend yield: 3.9%; TSINetwork Rating: Above Average; www.transcanada.com) operates a 68,000- kilometre pipeline network that pumps natural gas from Alberta to Eastern Canada and the U.S. The company’s pipelines supply 20% of North America’s natural gas needs. In 2014, they provided 48% of TransCanada’s revenue and 53% of its earnings....

In addition to TransCanada (see page 51), we like these three pipeline operators’ prospects. All of them are investing in projects that will spur their cash flows—and dividends—for years to come. ENBRIDGE INC. $61 (Toronto symbol ENB; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 855.0 million; Market cap: $52.2 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.enbridge.com) gets 90% of its revenue from pipelines that pump oil and natural gas from Western Canada to Eastern Canada and the U.S. The remaining 10% mainly comes from distributing gas to 2.1 million consumers in Ontario, Quebec, New Brunswick and New York State. The company plans to spend $44 billion on new pipelines and expansions between 2014 and 2018. It completed $9.8 billion worth of that total in 2014 and expects to finish another $8.7 billion worth this year. Enbridge has already secured shipping contracts for $34 billion worth of these projects, which cuts its risk....

Innergex Renewable Energy, $11.03, symbol INE on Toronto (Shares outstanding: 100.9 million; Market cap: $1.1 billion; www.innergex.com), is a recommendation of our Canadian Wealth Advisor newsletter. We place Innergex in the Utilities sector, a broad area that includes telecoms, pipelines, power generators and so on. The company generates electricity, but it focuses on renewable energy, including hydroelectric plants, wind farms and solar power. That puts it in something of a niche category among utilities that includes stocks like Algonquin Power & Utilities, $9.73, symbol AQN on Toronto, and Northland Power, $16.99, symbol NPI on Toronto....