transcanada

TRANSCANADA CORP. $36 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 539.7 million; Market cap: $19.4 billion; SI Rating: Above average) has agreed to buy the Ravenswood power plant located in Queens, New York for $2.9 billion U.S. The plant has the capacity to service 21% of New York City’s peak electricity load. The price is 10% more than TransCanada’s 2007 cash flow of $2.6 billion or $4.95 a share. TransCanada will probably issue $1.2 billion worth of new common shares to help pay for this purchase. The acquisition provides diversification in power generation and into the U.S. market. TransCanada should also profit from rising power demand in New York....

MANITOBA TELECOM SERVICES $39.63 (Toronto symbol MBT; SI Rating: Average) has announced it will participate in the upcoming auction of wireless frequencies (called ‘spectrum’ in the industry). If successful, that would let it offer wireless services outside of Manitoba. The company has formed a consortium with the Canada Pension Plan Investment Board and The Blackstone Group L.P. Each will own a third of this partnership. The wireless industry is highly competitive, but growing fast. This partnership will cut Manitoba Tel’s share of the start-up costs, and help it keep paying its $2.60 dividend, which yields 6.6%. Manitoba Tel is a buy....

TRANSCANADA CORP. $36.34, Toronto symbol TRP, fell about 9% this week after it agreed to buy the Ravenswood power plant located in Queens, New York for $2.9 billion U.S. The plant has the capacity to service 21% of New York City’s peak electricity load. The price is 10% more than TransCanada’s 2007 cash flow of $2.6 billion or $4.95 a share. TransCanada will probably issue $1.2 billion worth of new common shares to help pay for this purchase. TransCanada foresees as much as $2 billion in investment opportunities for capacity expansion and efficiency improvements at the facility. As well, Ravenswood provides diversification in power generation and into the U.S....

TRANSCANADA CORP. $38.06, Toronto symbol TRP, has teamed up with U.S.-based Williams Companies Ltd. to evaluate the Sunstone project, a proposed pipeline that would transport natural gas from the Rockies to the western United States. Sunstone could begin operations in 2011. Both companies already operate pipelines in the region, which cuts the risk of this project. TransCanada is a buy. TRANSALTA CORP. $30.36, Toronto symbol TA, fell 10% this week after activist shareholder Luminus Management withdrew its slate of director nominees....

ISHARES DIVIDEND INDEX FUND $20.28 (Toronto symbol XDV; buy or sell through a broker) began trading in December, 2005. The fund currently holds the 30 highest yielding Canadian stocks. These stocks are included in the index based on their dividend growth, yield and average payout ratio. The weight of any one stock in the fund is limited to 10% of the fund’s assets. Its MER is 0.50%. iShares Dividend Index Fund now yields 3.2%. The fund’s top holdings are: CIBC at 7.6%; Manitoba Telecom at 5.7%; Bank of Montreal, 5.7%; National Bank, 5.2%; TD Bank, 5.0%; Royal Bank, 4.5%; Russel Metals, 4.4%; Telus Corp., 4.1%; Bank of Nova Scotia, 3.9%; IGM Financial, 3.7%; Rothmans, 3.5%; TransCanada Corporation, 3.3%; BCE Inc., 3.3%; Laurentian Bank, 3.2%; and Enbridge, 3.1%....

ISHARES CANADIAN BOND INDEX FUND $29.21 (CWA Rating: Income) (Toronto symbol XBB; buy or sell through a broker) mirrors the performance of the Scotia Capital Universe Bond Index. This index consists of a diversified range of investment grade Canadian government and corporate bonds, with a term to maturity of more than one year. At last report, the bonds in the index were 41.5% Government of Canada bonds, 26.7% Provincial government bonds, 2.1% municipal bonds and 28.8% corporate bonds....

We generally advise against investing in bond funds because we doubt that bond fund managers can add enough value to offset their fees. However, if you need steady income and want to hold bond funds, here are two funds that have low fees and top-quality holdings, and that stay out of speculative trading. ISHARES CANADIAN SHORT BOND INDEX FUND $28.73 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through a broker) mirrors the performance of the Scotia Capital Short Term Bond Index....

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. The company recently agreed to sell half of Keystone to U.S.-based oil giant Conoco- Phillips for an undisclosed sum. TransCanada had earlier granted ConocoPhillips this option as part of a long-term shipping agreement. That will cut the risk of this project, as well as its projected cost of $3 billion....

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....

RBC CANADIAN DIVIDEND FUND $44.84 (RBC Funds, P.O. Box 7500, Station A, Toronto, Ontario. M5W 1P9. 1-800-463-3863; Web site: www.royalbank.com. No load — deal directly with the bank) has 38.1% of its portfolio in Financial services stocks. It has a further 14.4% in Energy stocks and 8.5% in Consumer discretionary. The $9.6 billion RBC Canadian Dividend Fund’s top stock holdings are Royal Bank of Canada, Bank of Nova Scotia, Toronto-Dominion Bank, Manulife Financial, Canadian Imperial Bank of Commerce, TransCanada Corporation, Bank of Montreal, BCE Inc. and Power Corporation. Over the last five years, RBC Canadian Dividend Fund has posted a 14.9% annual rate of return. That’s less than the S&P/TSX’s gain of 18.3% over the same period....