Is TransCanada Corporation's Stock a Buy Now That the Keystone XL Pipeline Is Back in Play?

Chart showing more pipeline takeaway capacity in Canada than needed by 2020.

Image source: Kinder Morgan

Investor Presentation.

Finally, the cost of the project will likely rise well above the current $6.1 billion estimate. One of the potential cost drivers is the Trump administration's requirement that TransCanada use American-made steel and pipes, which are more expensive than Chinese steel, for example. Depending on the final cost, the project could be uneconomic, especially if too many shippers balk at the shipping rate.

Visible growth without Keystone XL

What investors need to realize about TransCanada is that it can thrive even if it does not build the Keystone XL pipeline. That's because the company has 26 billion Canadian dollars of near-term capital projects under development. These projects include several new natural gas pipeline projects across North America, as well as new oil pipelines and power projects. That backlog alone supports TransCanada's view that it can grow the dividend by 8% to 10% per year through 2020, which is an acceleration of the 7% compound annual growth rate it has delivered since 2000.

Further, the company has plenty of growth beyond that backlog. Overall, TransCanada has another CA$45 billion of commercially secured long-term projects, though Keystone XL does represent CA$8 billion of that amount. However, it is one of four transformational projects in the company's long-term project portfolio, the largest of which is the CA$15.7 billion Energy East project. In other words, while bringing back Keystone XL enhances TransCanada's growth potential, it is by no means crucial to its future success.

Investor takeaway

The revival of the Keystone XL project will likely keep TransCanada in the news for quite some time. However, investors need to realize that this project is not what defines TransCanada, because it will deliver exceptional growth with or without this project. Investors should buy the stock because of its clearly visible growth, not just because it might finally get to build Keystone XL.

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Matt DiLallo owns shares of Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan and long January 2018 $30 calls on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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