TransCanada Corp. (TSX: TRP, NYSE: TRP) reported a 7% decline in adjusted earnings per share for the second quarter. The dividend was 8.7% higher than a year ago. 

The natural gas pipelines division saw adjusted EBITDA (earnings before interest, taxation, depreciation and amortization) rise 10%, while EBITDA from liquids pipelines was 11% lower, and profits from the volatile energy division dropped 12%. Overall EBITDA was flat compared to a year ago.

Given challenging conditions in the energy markets, this could be described as a reasonable result, though management made large adjustments to the company’s numbers when compared to accounting standards.

The $13 billion acquisition of the Columbia Pipeline Group was completed during the quarter. TransCanada issued equity and increased its debt levels considerably to finance the acquisition. Despite management’s assurances that the deal will be accretive to earnings, we remain skeptical about the rationale for the acquisition.

TransCanada has C$25 billion worth of projects underway, which the company hopes to complete by the end of 2018. This includes the C$9.5 billion of projects which were inherited with the Columbia acquisition, as well as the recently awarded $2.1 billion Sur de Texas-Tuxpan pipeline project. 

The balance sheet is fully levered, with a debt-to-capital ratio of 65%, though the company’s credit rating remains high investment grade.

Adjusted earnings per share for the full year are expected to grow 3%, while the dividend is forecast to grow 9%.

TransCanada’s share price had a good run over the past few months, and the valuation discount to its peers has now closed. The well-covered dividend still yields an attractive 3.7%, especially when taking into account management’s promise of 8% to 10% annual dividend growth. We estimate TransCanada’s fair value at C$59 per share, or US$45.

The full extent of the Fort McMurray wildfires was evident in Suncor Energy’s (TSX: SU, NYSE: SU) second-quarter results. Operating cash flow per share dropped 61% year over year, while the dividend was unchanged.  

Production facility shut-ins reduced oil sands production to 213,000 barrels per day, 52% below the level achieved in the same quarter last year.

As of mid-July, all oil sands operations were back to full production. Apart from the production loss, $50 million of costs were also incurred to evacuate staff and restart operations.

The Refinery division delivered good results, with operating profits and cash flow from operations increasing 7% and 9%, respectively.  

The balance sheet remains in decent condition, with a debt-to-capital ratio of 28%, boosted by a $2.8 billion equity issuance during the quarter. However, both Moody’s and S&P recently downgraded the rating outlook for the company, though credit ratings remain at a high investment-grade level.

During the quarter, Suncor acquired a further 5% interest in Syncrude, which together with the previously held interest (partly from the Canadian Oil Sands acquisition), will push its working interest in Syncrude to 54% and add a total of 146,000 barrels of oil to daily production.

This quarter is best forgotten, as a disaster on the scale of the wildfires is unlikely to be repeated anytime soon.

We are holding Suncor in the Dividend Champions Portfolio for its ability to sustain its dividend during commodity down cycles. This ability is now severely tested, but we remain confident that better days will come again as energy prices recover. Suncor’s stock currently yields 3.3%, with prospects for further dividend growth largely dependent on energy prices.

Thomson Reuters (TSX: TRI, NYSE: TRI) delivered a reasonable second-quarter result courtesy of a reduced tax rate that helped the bottom line. Adjusted earnings per share increased by 11% year over year, while the quarterly dividend is 2% higher than a year ago.

On a consolidated basis, revenues declined by 1.2% and EBITDA (earnings before interest, taxation depreciation, and amortization) rose by 2%. The Financial and Risk division, the company’s largest segment, continued to improve, with a 3% increase in EBITDA, as net sales of financial services products increased for the 9^th quarter in a row. The legal and tax divisions had somewhat disappointing results, with 3% and 9% declines in EBITDA, respectively.

The US$3.6 billion disposal of the Intellectual Property and Science Division, now expected to close in the second half of 2016, will result in a profit dilution. But management expects to partially plug the hole with share buybacks and debt reduction.

The company forecasts low single-digit revenue growth for the full year and slightly higher profit margins. This is unchanged from previous guidance.

The balance sheet is reasonably levered, with a net debt-to-capital ratio of 40%, though cash flow remains sound. Management said that part of the proceeds of the division sale will be used to reduce the firm’s debt load.

Thomson Reuters is trading at a slight discount to its international peers, with a well-covered dividend that yields an attractive 3.2%. We estimate the stock’s fair value at C$54, or US$41.

Fortis Inc. (TSX: FTS, OTC: FRTSF) reported second-quarter adjusted earnings per share grew 5% year over year, while the dividend is 12% higher than a year ago.

Operating results from the various divisions were a mixed bag, with electric utility Fortis Alberta struggling, while Fortis BC and UNS steamed ahead.

A key focus for Fortis is the completion of the US$11.3 billion acquisition of ITC, the U.S. Midwest transmission business. Financing arrangements for the transaction received a major boost with the sale of a 19.9% interest to the Singapore Wealth Fund for US$1.2 billion.

The regulatory review process is underway and the final closing of the transaction is expected in late 2016. Management expects the transaction to make a positive contribution to earnings per share in the first full year of operation.

Fortis’ balance sheet remains in good condition, with a debt-to-capital ratio of 55%, though S&P’s high investment-grade credit rating was moved to a negative outlook after the announcement of the ITC acquisition.

Management intends to grow the dividend 6% annually for the foreseeable future, which is supported, in our view, by strong cash flow and a reasonably leveraged balance sheet. With a dividend yield of 3.7%, we estimate the stock’s fair value at C$46, or US$35.                                                       

RioCan REIT (TSX: REI-U, OTC: RIOCF) reported second-quarter operating funds from operations per unit (OFFO–a measure of income adjusted for capital or transactional items such as property sales) fell 2.9% year over year. The distribution per unit was unchanged.

The primary reason for the decline in OFFO was the profit gap left by the sale of the U.S. portfolio. It will take time for management to fill this gap, but we note that RioCan has completed more than $1.1 billion worth of property acquisitions since September 2015, including a recent $352 million purchase of a 50% interest in four properties already partly owned by the REIT.

Net operating income for the Canadian portfolio increased by 6.1% in the quarter and same-property net operating income increased by 0.8% compared to a year ago. This reasonably reflects the operating performance of RioCan’s current portfolio.

Committed occupancy improved during the quarter to 95.1%, but is still lower than the 97% achieved prior to the departure of Target Canada in early 2015. Management reports that it has signed or received commitments from new tenants that will cover 115% of the lost Target base rent. However, it will take time before most of the new committed tenants start to pay rent, as the vacant space will have to be reconfigured in many cases.

The US$1.9 billion sale of the U.S. property portfolio was completed during the quarter. Net proceeds of around US$1.0 billion will be used to reduce debt and fund RioCan’s property development strategy. Part of the lost revenues will be replaced with the properties purchased from Kimco in 2015, and there will also be a substantial interest-cost savings.

RioCan’s units currently have an attractive yield of 4.9%, but we remain concerned about the lack of distribution growth. However, the REIT owns a high-quality portfolio concentrated in the core urban areas of Canada and the development and intensification of existing properties will substantially boost profits over the next few years. We will remain holders of the REIT in the Dividend Champions Portfolio for now.

Earnings Checklist

The table below lists the date for each Dividend Champion’s earnings announcement along with our expectation for the dividend. The companies highlighted in green have already reported results. Please note that some of the dates listed below are estimates based on the timing of prior-year releases and are therefore subject to change.