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Analyzing TC PipeLines’ Distributions and Capital Expenditures

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TC PipeLines’ distributions

TC PipeLines’ (TCP) 3Q16 distribution per unit of $0.94 didn’t change from its 2Q16 distribution. It rose 6% from its 3Q15 per unit distribution of $0.89. Its 3Q16 distribution was the 70th consecutive quarterly distribution paid by TC PipeLines. Currently, TC PipeLines trades at a distribution yield of 6.4%.

Energy Transfer Partners (ETP) announced a 3Q16 distribution of $1.06 per unit, which is the same as the past five quarters. Plains All American Pipeline (PAA) announced a decrease in distributions from $0.70 in 2Q16 to $0.55 per unit for 3Q16. On the other hand, Kinder Morgan (KMI) declared flat dividends of $0.13 per share in 3Q16.

The above graph shows TC PipeLines’ distributable cash flows and total capital expenditure over the last two years. The right axis shows the company’s per-share distribution. TC PipeLines generally increases its per unit distribution once a year.

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TCP’s capital expenditure

TC PipeLines’ growth capital expenditure fell from $45 million in the nine months ending September 30, 2015, to $21 million for the same period in 2016. Compared to 2015, a lesser amount of capital expenditure was incurred on acquisitions in 2016.

TCP’s distributable cash flows

TC PipeLines’ distributable cash flow grew marginally in 3Q16 compared to 3Q15 due to higher transmission revenues on the company’s GTN pipeline and higher equity earnings from its equity investments. TC PipeLines expects its future growth to be driven by drop-downs from sponsor TransCanada (TRP). Drop-downs to TC PipeLines are expected to be a key way of funding TransCanada’s $25 billion Canadian dollar capital projects over the next three years.

In the next part, we’ll see what makes TC PipeLines’ earnings stable.

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