With the announcement of the 2010 financial outlook, Spectra Energy (SE) sees more than 20% earnings growth and expects to maintain at least its current annual dividend of $1.00 per share.

The company is targeting diluted earnings per share of $1.42 this year with a 2010–2012 compounded annual EPS growth rate in the range of 8% to 10%. Spectra announced capital expansion projects of $900 million this year, with a return on capital employed of more than 12%. For the 2010–2014 period, these figures are at least $5 billion and 12%–14%, respectively.

Spectra has been successfully executing its capital expansion projects. The company had completed within budget all of its 10 scheduled expansion projects last year. These projects are earning returns above the high end of its stated range of 10%–12%, and management believes these will continue to provide earnings and cash flow for many years to come.

With a bolstered financial flexibility, the company is in good shape and ahead of the curve in terms of its portfolio of growth projects. Following the spin-off, Spectra has been gaining traction with its fee-based businesses. During the 2007–2009 timeframe, the company had placed into service 42 fee-based expansion projects totaling more than $3 billion.

Based on Spectra’s 2010 financial outlook and performance of expansion projects in the last few years, we view that the company will be able to generate sufficient cash flow that can be used to fund not only its dividends but also its operations and partially to finance maintenance and expansion capital.

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