Can TransCanada Corporation Re-Accelerate in the Fourth Quarter?

The third quarter marked quite a departure for TransCanada (NYSE: TRP). After riding the wave of acquisition-driven growth in the first two quarters, the Canadian pipeline company hit a speed bump last quarter after completing several asset sales to pay for the needle-moving purchase of Columbia Pipeline Group. While those sales will remain a headwind in the fourth quarter, the company does have several expansion projects entering service that should at least help cushion the blow. Given that backdrop, there are a few things investors should keep an eye on when the company releases fourth-quarter results on Thursday morning.

See if expansion projects offset asset sales

Last quarter, TransCanada's distributable cash flow plunged nearly 30% on a per-share basis mainly because the company sold off several power assets to help pay down the debt it took on to temporarily finance its acquisition of Columbia Pipeline Group. In a sense, the funding strategy briefly inflated the company's results because it benefited from holding assets it had no intention of keeping. That will make the fourth-quarter another tough comparable one for the company since the year-ago period also enjoyed those inflated earnings.

That said, TransCanada has been working hard to offset this headwind by completing expansion projects that should move the needle in future quarters. The company completed a slew of projects at the end of last year, which should provide some incremental cash flow versus the third quarter. For example, in November the company placed its Northern Courier pipeline into service to support Suncor Energy's Fort Hills oil sands project. Suncor's project produced 6,000 barrels per day during the quarter as it started operations and should continue ramping up in 2018 on its way toward 194,000 barrels per day.

In addition to finishing the Northern Courier project, TransCanada also placed its Rayne XPress pipeline and Gibraltar project online in its U.S. gas pipeline business toward the end of the year. Meanwhile, the company expected to complete a large expansion of the NGTL System in Canada by the end of the year. These projects and the ramp-up of those finished earlier in the year should help TransCanada return to growth mode in the near-term. That said, it will be tough for the company to storm all the way back in the fourth quarter given the late timing of its most recent expansion projects.

Keep an eye on what it says about the Keystone XL project

Aside from its quarterly results, another thing investors should look for when TransCanada reports is what the company has to say about the long-delayed Keystone XL Pipeline. Once left for dead, this pipeline appears poised to move forward after the pipeline giant secured enough long-term contracts to ensure its commercial viability.

That said, TransCanada still needs to obtain the necessary rights-of-way to build the project. The company hopes that it can complete the permitting process this year and start construction in 2019, which would put it into service in 2021. That said, pipeline rivals Enbridge (NYSE: ENB) and Kinder Morgan (NYSE: KMI) have had issues getting the necessary permits to build their large oil sands pipelines. In Enbridge's case, it has run into some delays in Minnesota that might delay its Line 3 Replacement project. While Enbridge hopes to obtain the necessary approvals by next quarter, if it doesn't, the in-service date could get delayed past the current target of the second half of next year. Meanwhile, Kinder Morgan has had troubles getting permits in British Columbia for its Trans Mountain Pipeline expansion. Because of that, Kinder Morgan's project is already a year behind schedule and won't enter service until late 2020 at the earliest. Given those issues, investors should see what TransCanada has to say about the likelihood that it will begin construction on Keystone XL next year. If the company has confidence in that timeline, it will increase the visibility of future dividend growth well beyond the current forecast that the payout will increase by 8% to 10% annually through 2021.

The pause might continue, but it won't last long

Investors should brace themselves for TransCanada to report another quarterly earnings decline since it's going up against a tough comparable quarter when it benefited from temporarily inflated earnings. That said, the company should return to growth mode this year given all the projects it has coming down the pipeline. Meanwhile, it might have more visibility on future growth if it believes it can start construction on the Keystone XL project next year, which would mean the company's 4.7%-yielding payout can keep growing at a fast pace.

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Matthew DiLallo owns shares of Enbridge and Kinder Morgan and has the following options: short March 2018 $17 puts on Kinder Morgan. The Motley Fool owns shares of and recommends Enbridge and Kinder Morgan. The Motley Fool has a disclosure policy.