TransCanada stock drops after dividend cut

Shares of TransCanada Pipelines Ltd. took a beating on the Toronto stock market Wednesday after the company announced it was cutting its generous dividend by close to a third. The announcement came as TransCanada put all of its non-core businesses up for sale.

The stock dropped $2 in early trading and by the end of the day was down $2.45 to $13.00 on a trading volume of more than 12 million shares.

Investors were reacting to the surprise cut in TransCanada's $1.12 dividend -- one of the highest yielding dividends paid by any company trading on the TSE. TransCanada lowered the dividend to 80 cents a share, despite repeated assurances that it wouldn't make a cut.

Canada's largest energy services firm said it's trying to generate capital in order "to strengthen its financial flexibility and capture North American energy growth opportunities."

The company also announced Wednesday it's selling off non-core operations in order to focus on natural gas transmission, power generation and marketing in Canada and the northern United States.

The company says it will use the cash made from asset sales "to repay debt and enhance the strength or our balance sheet."

TransCanada expects to realize $3 billion from the sell-off.

On the auction block are: TransCanada's international sales; midstream businesses including the gathering and processing and extraction operations; express pipeline system and Cancarb, the company's carbon thermal black manufacturing business.

The moves will allow the company to concentrate on what president and CEO Doug Baldwin sees as its key endeavours.

"TransCanada's competitive advantage is in our low cost gas transmission assets across the northern tier of North America," Baldwin said in a release. "Going forward, we will focus on how we can provide gas and power services to North America's growing businesses."

Baldwin, who took over the presidency from George Watson in July, says besides improving the company's financial position, the moves are aimed at improving returns to shareholders.

TransCanada plans to continue reducing costs into next year and "will significantly reduce the size of its employee and management base."

Since the giant takeover of NOVA Corp. last year, TransCanada cut 600 permanent jobs from its ranks of 5000 employees. The company says approximately one-third of the current employees are associated with the assets being sold.

TransCanada has already sold $1 billion worth of assets in the past year, including Angus Chemicals and its U.S. midstream operations.

Many of the businesses put up for sale Wednesday are losing money and the company may have difficulty finding buyers for the $3 billion in assets.