TC PipeLines Raises Distribution - Analyst Blog
July 20 2011 - 8:45AM
Zacks
Pipeline operator TC
PipeLines L.P. (TCLP) raised its second
quarter 2011 cash distribution to 77 cents per unit ($3.08 per unit
annualized), representing an increase of approximately 2.7%
sequentially and 5.5% year over year. The cash distribution is the
49th consecutive quarterly distribution paid by it. TC PipeLines’
new distribution is payable on August 12 to unitholders of record
as on July 31, 2011.
Calgary, Alberta-based TC PipeLines
is a master limited partnership (“MLP”), with stakes in 5,560 miles
of federally regulated U.S. interstate natural gas pipelines that
cater to domestic and Eastern Canadian markets.
The partnership has significant
interests in four pipeline systems: the Northern Border Pipeline
Company (“NBPL”), the Tuscarora Gas Transmission Company, Great
Lakes Gas Transmission, L.P, and the North Baja Pipeline, LLC.
Recently, TC PipeLines acquired a 25% interest each in two other
major U.S. gas pipelines – Gas Transmission Northwest LLC and Bison
Pipeline LLC – from parent TransCanada Corp.
(TRP) for $605 million.
TC PipeLines’ announced
distribution hike is in sync with its goal of providing a stable
and growing cash distribution to the unitholders. The partnership
has a proven history of distribution growth with 9 quarterly hikes
(or more than 30% increase) since July 2006.
TC PipeLines, which is slated to
report its second-quarter results on July 27, has bolstered its
cash flows in recent times on the back of strong contribution from
the partnership’s portfolio of six pipeline assets.
TC PipeLines units currently retain
a Zacks #3 Rank, which translates into a short-term Hold rating. We
are also maintaining our long-term Neutral recommendation on the
stock.
We believe future growth prospects
for the partnership have improved considerably following the North
Baja Pipeline acquisition and the subsequent capping of general
partner incentive distribution rights (“IDRs”) at 25% (which allows
limited partners to benefit from the partnership’s growth). We also
like TC PipeLines’ steady cash-flow generating pipeline assets,
which provide stability and financial capacity to deliver cash
distributions in a disciplined manner.
However, at current valuations, we
find it difficult to justify a sufficient potential return to
support a higher rating. We expect TC PipeLines’ value to remain
clouded, as the partnership struggles with weak natural gas
fundamentals. Consequently, we see the stock performing in line
with the broader market.
TC PIPELINES (TCLP): Free Stock Analysis Report
TRANSCDA CORP (TRP): Free Stock Analysis Report
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