Pipeline operator TC PipeLines L.P. (TCLP) raised its third quarter 2010 cash distribution to 75 cents per unit ($3.00 per unit annualized), representing an increase of approximately 2.7%, both sequentially and year over year. The cash distribution is the 46th consecutive quarterly distribution paid by it. TC PipeLines’ new distribution is payable on November 12 to unitholders of record as on October 31, 2010.
Calgary, Alberta-based TC PipeLines is a master limited partnership (“MLP”), with 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.
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 8 quarterly hikes (or 27% increase) since July 2006.
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 TC PipeLines have improved considerably following the North Baja Pipeline acquisition and the subsequent capping of general partner incentive distribution rights (“IDRs”) at 25%. In particular, the 25% IDR cap (which only a handful of MLPs have adopted until now) will allow limited partners to benefit from the partnership’s growth. We also like TC PipeLines for its steady cash-flow generating pipeline assets, which provide the stability and financial capacity to deliver cash distributions in a disciplined manner.
However, weak natural gas fundamentals currently cloud TC PipeLines’ value and are the main factor behind our cautious stance.
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