The Problem Child
TransCanada Corporation (USA) (NYSE:TRP) is actually a pretty solid option for investors despite the Keystone fiasco. It is a massive pipeline player in Canada and has been diversifying its business beyond its current reliance on natural gas pipelines. That’s on top of an energy business that already provides a good amount of diversification and support for the company’s modest dividend.
The Canadian pipeline company is not an LP, so its dividend yield is below that of Kinder or Enterprise. However, it is financially strong, and TransCanada Corporation (USA) (NYSE:TRP) has shown that it is capable of taking on big projects and long fights. So, if the rules change after Keystone gets approved or denied, TransCanada Corporation (USA) (NYSE:TRP) should be able to handle the impact and be well versed in the changes.
Investors, meanwhile, seem to like the company’s prospects with or without Keystone, since the shares have been on a fairly steady climb over the past few years. That said, if Keystone isn’t approved, the shares are likely to trade lower on the news. That could be a good buying opportunity.
Yield or Growth
Enbridge Inc (USA) (NYSE:ENB), with a market cap of nearly $38 billion, is another industry giant. It has pipeline assets spanning both Canada and the United States. The Canadian company also owns a natural gas utility that serves Canada and some U.S. regions near the boarder.
The company makes more liberal use of debt than some of its industry peers, with debt accounting for around 70% of the capital structure. However, Enbridge Inc (USA) (NYSE:ENB) is financially strong and would easily be able to make any improvements to its systems that new regulation might require. Like TransCanada Corporation (USA) (NYSE:TRP), however, it is not an LP, so its dividend yield, at less than 3%, is low relative to the LPs with which it competes.
That said, the company is the general partner for Enbridge Energy Partners, L.P. (NYSE:EEP). Although this LP’s $9.5 billion market makes it fairly small relative to Enterprise ($55 billion) and Kinder ($33.5 billion), its parent company has the heft to keep Enbridge going through any difficult times. Its around 7% yield is notably higher than that offered by the two larger LPs, making Enbridge Energy Partners, L.P. (NYSE:EEP) a good option for income investors.
Enbridge Energy Partners, L.P. (NYSE:EEP) is also likely to benefit from drop down transactions from its general partner, which means there is also meaningful growth potential at the LP. General partners often sell legacy assets with stable, but slow growth, cash flows to their controlled limited partnerships to free up capital for growth. As a small LP, even tiny transactions could meaningfully increase Enbridge Energy Partners’ growth.
Changes from Unexpected Places
Industry changes can come from all different places. Right now, the Keystone debate in the United States looks like a slow motion regulatory nightmare. Sticking to the big industry players, however, should provide ample protection from any rule changes that the Keystone debate might be telegraphing.
The article Keystone Could Set The Bar High originally appeared on Fool.com and is written by Reuben Brewer.
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