TRANSCANADA CORP. $50 (Toronto symbol TRP; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 702.3 million; Market cap: $35.1 billion; Priceto- sales ratio: 3.1; Dividend yield: 4.5%; TSINetwork Rating: Above Average; www.transcanada.com) operates a 67,300- kilometre pipeline network that pumps natural gas from Alberta to Eastern Canada and the U.S. This system supplies 20% of North America’s natural gas needs. In 2015, gas pipelines provided 47% of TransCanada’s revenue and 54% of its earnings.

The company also owns or invests in 20 power plants in Alberta, Ontario, Quebec and the northeastern U.S. In all, these facilities have over 13,100 megawatts of generating capacity. This business supplied 36% of its 2015 revenue and 24% of earnings.

The remaining 17% of TransCanada’s revenue and 22% of earnings came from its oil-pipeline business. The operations mainly consist of the Keystone pipeline, which pumps crude from Alberta to storage terminals in Oklahoma. The oil then travels on to refineries in Illinois. Keystone accounts for 20% of Western Canada’s crude exports to the U.S.

The company’s revenue rose 44.2%, from $7.8 billion in 2011 to $11.3 billion in 2015.

Earnings fell 14.9%, from $2.22 a share (or a total of $1.6 billion) in 2011 to $1.89 a share (or $1.3 billion) in 2012, mainly due to lower gas pipeline revenue and power prices. Earnings rebounded to $2.24 a share (or $1.6 billion) in 2013, and rose to $2.48 a share (or $1.8 billion) in 2015.

Cash flow per share fell 13.2%, from $4.23 in 2011 to $3.67 in 2012. It then recovered to $4.57 in 2013, and reached $5.00 in 2015.

Big pipeline projects under fire

In November 2015, the U.S. government rejected TransCanada’s proposed $8.0 billion U.S. Keystone XL pipeline. This project would have pumped crude from Alberta’s oil sands to refineries on the U.S. Gulf Coast. The cancellation forced the company to write off the $2.9 billion it had already spent on this project.

The company still plans to build its Energy East pipeline. This $15.7-billion project would pump crude from Alberta to refineries in Quebec and New Brunswick by 2020.

Energy East is part of TransCanada’s long-term plan to invest $58 billion in new pipelines and power projects. Of that total, $13 billion of these projects should begin operating by 2018.

In addition, the company recently announced a major acquisition: it’s paying $13 billion U.S. for Texas-based Columbia Pipeline Group (New York symbol CPGX).

Columbia operates natural gas pipelines in the U.S. Northeast, Midwest, Mid-Atlantic and Gulf Coast regions, as well as underground gas storage terminals. It’s now working on $5.6 billion U.S. worth of new pipelines. Columbia has already secured contracts from gas shippers. That cuts the risk of these projects.

To help pay for Columbia, TransCanada sold 96.6 million subscription receipts at $45.75 a share for total proceeds of $4.4 billion. Each receipt will convert to one common share when TransCanada completes the Columbia acquisition, probably by the end of 2016. Meantime, the holders of these receipts will receive the same dividends as holders of the company’s common shares.

In addition, TransCanada plans to sell some of its electrical power plants in the U.S. Northeast. Selling these assets could raise $7 billion.

High debt normal for utility stocks

TransCanada will also have to borrow some of the funds it needs to buy Columbia. That will push up its long-term debt of $31.5 billion (as of December 31, 2015). That’s a high 90% of its market cap.

However, high debt is common for regulated utilities. That’s because steady cash flow from their operations gives them flexibility to pay interest costs and upgrade their operations.

Buying Columbia should immediately increase TransCanada’s earnings. As well, regulated businesses and long-term contracted assets will account for 92% of the combined firm’s earnings.

Moreover, eliminating overlapping operations should save $250 million U.S. a year. These savings are on top of savings from TransCanada’s current restructuring plan. That plan includes cutting jobs and other costs. The company has not said how much it expects to save, but should be finished by the end of 2016.

The company’s earnings per share will probably rise to $2.60 in 2016. That excludes any contribution from Columbia. The stock trades at 19.2 times the forecast. The multiple is reasonable in light of TransCanada’s expansion plans.

16 years of dividend hikes

TransCanada has also raised its dividend each year since 2000. The current annual rate of $2.26 a share yields 4.5%. The company plans to boost the payout by 8% to 10% each year through 2020.

TransCanada is a buy.