When 95% of your EBITDA is assured thanks to regulated or long-term contracted assets, a pandemic or a lockdown doesn’t affect the way you do business. TC Energy (TSX:TRP)(NYSE:TRP) has largely been insulated from the impact of the pandemic this year, allowing it to generate stable EBITDA and revenue amid the ongoing uncertainty.
As the world learns to adjust to the second wave of the pandemic, TC Energy is going about its business uninterrupted. Its capital program is solid with $37 billion worth of secured capital projects and $11 billion of projects under development. Further, Canada’s large-cap energy giant invested $2.3 billion in the third quarter of 2020 in various capital projects.
Throughout 2020, the company took major steps to fund its capex. It raised $11 billion through the issuance of long-term debt in both Canada and the United States. Its financial outlook for 2020 remains unchanged, and its earnings and cash flow for the year are anticipated to be similar to the record results it produced in 2019. In fact, the company says that as it completes its capital program, it expects around 98% of its EBITDA to come from regulated contracted assets.
A look at TC Energy’s Q3 results
Net income for TC Energy’s third quarter of 2020 was $904 million compared to $739 million for the same period in 2019. For the nine months ended September 30, 2020, the figure was $3.3 billion compared to $2.9 billion in 2019. Earnings for the third quarter of 2020 were $893 million compared to $970 million in 2019. Comparable EBITDA of $7 billion and comparable funds generated from operations of $5.3 billion were also similar to the amounts reported last year.
These numbers support TC Energy’s dividend payout plan. Earlier in 2020, the company had increased its quarterly dividend to $0.81, an 8% increase over 2019. It is the 20th consecutive year that the company has raised its dividend. Its dividend payout indicates a forward yield of a tasty 6.1%, making it one of the top income stocks for your portfolio.
TC has consistently maintained a dividend payout of around 80% of comparable earnings and 40% of funds generated from operations. This strategy has worked well for the company in the last two decades, where it has reinvested 60% of free cash flow into core businesses, and delivering a return of approximately 8%.
This has resulted in a growth in earnings, cash flow, and dividends per share of approximately 7% over that period. The company says that based on its current performance it is expected to grow its dividend at an average annual rate of 8% to 10% through 2021 and 5% to 7% thereafter.
The Foolish takeaway
TC shares trade at $52.8 right now, and analysts have given it a target of $71.61 in a year’s time. That’s an upside of over 33% from current levels. When you factor in the 6% dividend payout, you realize that TC Energy is one of the safest plays when it comes to capital appreciation as well as regular income. It’s a win-win on all accounts.
