* TransCanada, Enbridge more than defensive stocks -analysts
* Both have projects getting less ink than Keystone, Gateway
* Higher fourth-quarter earnings expected
By Jeffrey Jones
CALGARY, Alberta, Jan 18 (Reuters) - Shares in Canada's pipeline companies are hitting new peaks as their stable business models and prospects for rising dividends prompt investors to overlook environmental and regulatory risks surrounding their new multibillion-dollar project proposals.
A shaky economic outlook in the United States and Europe has investors seeking defensive stocks, and TransCanada Corp and Enbridge Inc offer more than just shelter from the storm, analysts said.
Projects such as TransCanada's $5.3 billion Keystone XL proposal and Enbridge's C$6 billion ($6 billion) Northern Gateway plan account for the bulk of the headlines.
But both companies generate oodles of cash with existing assets backed by long-term contracts, and have a host of less contentious new developments on tap.
"People want yield, and yield plus growth is a solid combination," FirstEnergy Capital Corp analyst Steven Paget said, who has a "buy" rating on Enbridge and "market perform" on TransCanada.
TransCanada shares climbed 42 Canadian cents to a new high of C$49 on the Toronto Stock Exchange on Friday and are up 17 percent in the past year. Enbridge was up 21 Canadian cents at C$44.13, representing a 52-week gain of more than 20 percent.
The long-delayed Keystone XL pipeline to the southern United States from Alberta faces a new go-ahead decision in Washington in the coming months after President Barack Obama rejected it last year. Environmental groups oppose the project, saying it increases the risks of oil spills and will accelerate climate change by speeding up the development of the carbon-intensive Alberta oil sands.
Enbridge's Northern Gateway pipeline to Canada's Pacific Coast from Alberta is the subject of public hearings that began a year ago. That development also faces staunch opposition from environmental groups and several British Columbia native communities.
Behind the massive marquee projects is ever-tightening pipeline capacity to move oil sands-derived crude out of Alberta, which has led to deep discounts for the supply. Western Canada Select heavy blend, a widely quoted grade, now sells for less than half of a barrel of international benchmark Brent oil.
Producing companies shoulder the financial impact of that, while pipeline operators can sign up customers for new projects that would relieve the bottlenecks. TransCanada and Enbridge have several other proposals to move more oil to the U.S. Midwest, Gulf Coast and Eastern Canada.
Besides Northern Gateway, Enbridge has announced C$6.2 billion in expansions along its network over the next three years. TransCanada has proposed shipping oil to Eastern Canada by converting some of its natural gas mainline to oil use, as well as building new Alberta feeder pipelines.
"Right now Canadian differentials for heavy oil are in the $40 per barrel range. That's just extremely punitive to the cash flow of the guys that produce the heavy oil, so these are desperate times for them," said Chad Friess, analyst at UBS Securities. "There are a lot of things that are in the works to try to close down those (discounts) and they are willing to commit their volumes to new pipeline projects across the board."
Investors also appear to be betting that Keystone XL will be approved in its second approval process with the U.S. State Department, Paget said.
Both companies have extensive businesses outside of shipping oil. TransCanada runs Canada's main natural gas transport network and is a major participant in the race to move gas to the West Coast for LNG shipments to Asia.
It has signed pipeline agreements worth a total of about C$10 billion with Malaysia's Petronas and with a consortium led by Royal Dutch Shell Plc.
Enbridge has also expressed a desire to get involved in LNG, a side of the energy business that has not generated nearly the opposition in British Columbia that oil pipeline proposals have.
Enbridge chief Executive Al Monaco has outlined C$26 billion in commercially secured new projects through 2016.
Friess at UBS said that because of the well-known investments for both companies, growth profiles and returns are easily predicted.
"I think you're going to be limited to the dividends that they pay as well as the earnings growth that they are able to deliver," Friess said. He said the price-earnings multiple "is about as high as it can get in my mind. That said, earnings per share growth can be 10 to 15 percent per year for the next three or four years."
Add to that the dividend yield and that can still mean a 20 percent annual return, he said.
Both companies are due to report fourth quarter earnings in mid-February. Analysts, on average, expect TransCanada to report earnings of 55 Canadian cents a share, up from 53 Canadian cents a share a year earlier, according to Thomson Reuters I/B/E/S. Enbridge is expected to earn 44 Canadian cents a share, up from 39 Canadian cents a share. ($1=$0.99 Canadian) (Editing by Janet Guttsman and Grant McCool)