TFSA Investors: A Top Dividend Growth Stock to Buy Today

TC Energy (USA)(TSX:TRP), formerly TransCanada, is one of the most reliable income stocks in the industry.

| More on:

TransCanada Corp is no more as shareholders voted in favour of changing the company’s name to TC Energy Corp (TSX: TRP)(NYSE: TRP). It is a bittersweet ending for one of Canada’s most recognizable names in the energy industry. The company has operated under the TransCanada name for over six decades. The reality however, is that TransCanada was no longer a Canadian company.

Approximately 60% of TC Energy’s revenue comes from the United States. Its ties to Canada have also been seen as a weakness as it tries to gain U.S. approvals for the Keystone XL pipeline. It has also proved to be a liability in Trump’s “America First.”

As such, the company is leaving decades of history behind and forging a new path forward. Last Friday, TC Energy announced first-quarter earnings. Is the stock a buy?

Mixed first-quarter results

It was a mixed first quarter for the company. Earnings of $1.07 per share beat by $0.07, while revenue of $3.49 billion missed by $120 million, representing growth of 9.2% and 2% over the comparable quarter in 2019.

Funds from operations, a key metric for the company, increased 11% to $1.8 billion. In the quarter, the company placed approximately $5.3 billion of new growth projects into service. It estimates that there will be a further $7 billion worth of projects that will enter operation by end of year. As of end of first quarter, it had a robust backlog of $30 billion in growth projects.

The company also reiterated that these projects are supported by regulated or long-term contracts.

A dividend aristocrat

TC Energy is a very attractive income stock. The company currently yield’s 4.76% and it is a Canadian Dividend Aristocrat having raised dividends for 18 consecutive years. This is tied for the 13th longest streak in Canada. The best part is that the company is well positioned for sustainable dividend growth.

Growth projects are expected to underpin 8 to 10% dividend growth through 2021 — a very sustainable growth rate. In the first quarter, distributable cash flow came in at $1.76 per share. Dividends accounted for only 43% of DCF. Given this, even if the company misses its timeline for growth projects, it still has plenty of room to raise dividends.

Foolish takeaway

Regardless of the brand, this is still a well-managed company with an attractive dividend. The company is trading at a price-to-earnings ratio of 15.7, which is well below its historical averages. Likewise, it looks even cheaper given that it’s trading at a low forward price of 11.57 times earnings at writing.

TC Energy still operates in an industry that subject to volatility thanks to the price of oil. However, as a midstream company it is less impacted by price fluctuations. In fact, over the past six years, 95% of the company’s EBITDA growth has originated from regulated assets and long-term contracts. Any weakness in oil prices that drags down the price of its shares is a buying opportunity for investors.

Fool contributor mlitalien has no position in any of the stocks mentioned.

More on Dividend Stocks

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

3 of the Best Canadian Stocks to Buy and Hold in a TFSA

Given their reliable business models, consistent financials, and healthy growth prospects, these three Canadian stocks are ideal additions to your…

Read more »

woman checks off all the boxes
Dividend Stocks

What Every Investor Should Know Before Buying BCE for its Dividend

BCE (TSX:BCE) stock looks like an untimely trap, but there's a strong case for buying as the firm looks to…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

2 TSX Dividend Stocks Retirees Can Buy and Hold for the Next Decade

These dividend stocks provide the right mix of growth, income, and stability for the long term.

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

3 Stocks to Build a Strong Canadian Income Portfolio

While no dividend is guaranteed, these companies have shown their ability to generate resilient cash flows and return capital.

Read more »

stocks climbing green bull market
Dividend Stocks

2 High-Yield Dividend Stocks to Buy and Hold for a Decade of Income

With resilient business models, reliable cash flows, high yields, and healthy growth prospects, these two Canadian stocks are ideal for…

Read more »

Person holds banknotes of Canadian dollars
Dividend Stocks

I’d Put My Whole 2026 TFSA Contribution Into this 5.5% Passive-Income Payer

This passive-income payer has raised its dividend every year since 1995. Moreover, it has room to increase its dividend in…

Read more »

dividends grow over time
Dividend Stocks

$10,000 Invested at 8% for 20 Years Could Become $46,610

$10,000 doesn’t need perfect timing to become meaningful wealth — it mainly needs time and compounding.

Read more »

Partially complete jigsaw puzzle with scattered missing pieces
Dividend Stocks

How I’m Structuring My $7,000 TFSA for Steady Monthly Payouts

Learn the importance of structuring your portfolio to achieve steady payouts and minimize risk through smart diversification.

Read more »