U.S. Markets close in 2 hrs 5 mins

Will This High-Yield Dividend Stock’s Growth Engine Continue Humming Along in Q1?

Matthew DiLallo, The Motley Fool

TransCanada's (NYSE: TRP) growth engine kicked into high gear during last year's fourth quarter. Both the Canadian pipeline giant's earnings and cash flow zoomed nearly 30% compared to the prior-year period, fueled by the roughly 4 billion Canadian dollars ($3 billion) of expansion projects that entered service in 2018. That enabled the company to increase its dividend by 8.7% for 2019, boosting the yield up to 4.7%.

That trend should have continued during the first quarter, especially since TransCanada completed more projects earlier this year. That's one of a few things investors should keep an eye on when the company reports those results later this week.

Pipelines laid out for construction at sunset.

Image source: Getty Images.

See if the growth engine continued humming along

TransCanada has invested billions of dollars in expanding its North American energy-infrastructure business in recent years. Several projects have started up over the past few months, which should help boost first-quarter results.

One area to watch this quarter is the company's U.S. natural gas pipelines business. The company completed its WB XPress project last fall, which, along with some other factors, helped grow earnings from that segment by 34% during the fourth quarter. This business should get a further boost from the Mountaineer XPress and Gulf XPress, which began coming online during the quarter. Given the nearly $3.8 billion investment to build these projects, they should supply needle-moving growth, which is something investors should keep an eye on this quarter.

Look for continued progress in securing funding

TransCanada currently has more projects under construction and in development than it can finance internally while continuing to grow its high-yield dividend. As a result, the company has been actively working to bridge the gap. It had already announced more than $1 billion of asset sales last year, which will help fund some of the $8 billion it expects to spend on capital projects this year.

The pipeline giant is reportedly considering the sale of several other assets to ease its funding burden. For example, it put its Columbia Midstream unit on the market earlier this year, which could net it another $1 billion. Meanwhile, the company has been looking to bring on partners to help finance between 51% to 75% of its CA$6.2 billion ($4.6 billion) Coastal GasLink pipeline.

It could go a similar route with the Keystone XL pipeline that it's still working to move forward. Ideally, the company will have made some progress on securing additional funding during the quarter so that it doesn't have to consider slowing its dividend growth plans.

Check if it added any more expansions to the backlog

While TransCanada has more growth projects than it can finance, that isn't going to stop the company from continuing to push forward new ones that can generate attractive investment returns. The company had over CA$20 billion ($14.9 billion) of projects under development at the end of last year, which included Keystone XL.

Investors should see if the company converted any more of those potential opportunities into secured expansion projects. While Keystone XL remains in legal limbo, it's possible that the company could have approved the construction of other oil and natural gas pipelines to meet the needs of its customers.

All eyes on growth

TransCanada recently brought several expansion projects online that should provide plenty of fuel to grow earnings and cash flow during the first quarter. In addition to TransCanada reporting a strong quarter, investors will want to see progress on the company's funding plan, as well as on securing additional projects. Success in all three areas could help propel shares of the Canadian pipeline giant -- which are already up more than 30% this year -- even higher in the coming months.

More From The Motley Fool

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.