While it’s impossible to time the stock market, timing can be important in certain circumstances. Some of the ones that investors should at least be aware of are when a company is about to report earnings, pay its next dividend, or announce some other catalyst. That’s because they could earn a higher return if they buy before, or in some cases after, those events.
One company with a looming catalyst on the horizon is TransCanada (NYSE: TRP). It will pay its next quarterly dividend in July. To qualify for that payment, investors need to own shares of the Canadian oil and gas pipeline company before the end of June. And while collecting that upcoming dividend is a good reason to consider buying shares this month, it’s far from the only one.
An excellent starting point
TransCanada is having a bit of an odd year. Even though the company reported a return to growth mode at the end of 2017 and posted solid results in the first quarter of 2018, shares of the pipeline giant have fallen more than 10% this year. As a result, the stock trades at about 13 times cash flow, which is toward the low end of its historical range.
Adding to TransCanada’s current attraction is that the sell-off has pushed its dividend yield up toward 5% — well above its historical average. What makes that yield so appealing is that TransCanada backs it with strong financial metrics. For starters, more than 95% of the company’s earnings come from stable sources like fee-based contracts. It also pays out a conservative portion of that money, and it has one of the strongest balance sheets in the sector. Those three factors put the company’s payout on solid ground.
A long growth runway ahead
Adding to TransCanada’s appeal is the growth it has up ahead. The company currently has 21 billion Canadian dollars’ ($15.8 billion) worth of expansion projects under construction, which put it on track to grow earnings at an 8% to 10% annual pace through 2021. That growing earnings stream leads the company to believe that it can increase its dividend at an 8% to 10% yearly pace at least through 2021.
Meanwhile, the company has plenty of growth beyond that current forecast as it has another CA$20 billion ($15 billion) of expansions in development. Two of the largest ones are moving closer to becoming a reality: Keystone XL and Coastal GasLink. After years of delay, TransCanada could soon sanction the $8.5 billion Keystone XL pipeline. That would put it on pace to start construction next year, putting the line in service by 2021.
TransCanada could also give the green light on the CA$4.8 billion ($3.6 billion) Coastal GasLink project if Royal Dutch Shell (NYSE: RDS-A)(NYSE: RDS-B) and its partners approve their massive natural gas export terminal. While Shell’s CA$40 billion ($30 billion) LNG Canada project likely wouldn’t start up until 2023 or 2024, TransCanada could start construction on Coastal GasLink early next year. If those two projects move forward, they’ll significantly enhance TransCanada’s dividend growth visibility, which could provide a lift to the stock price.
As good a time as any to consider starting a long-term relationship
While investors should have a long-term mindset, they have the opportunity not only to buy shares of TransCanada at a lower price but to lock in its upcoming dividend if they act fast. On top of that, the company could sanction two major projects this year, which might provide a boost to the stock price as it would increase TransCanada’s long-term growth visibility. All in all, investors have plenty of reasons to consider buying shares sooner rather than later, which could yield them higher returns over the long term.
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