How Safe Is TC Energy’s (TSX:TRP) 5.9% Dividend?

A dip in energy demand over the past year has had a deeply adverse impact on energy infrastructure giant TC Energy (TSX: TRP)(NYSE: TRP). While the stock has dropped by more than 10% over the past year, it has maintained its impressive 5.9% dividend yield.

Now, the company’s struggles have amplified. With the change in administration in the U.S., the world’s largest energy consumer is trying to wean itself off fossil fuels yet again. President Joe Biden has already dismantled the KeyStone XL pipeline project via executive order. That’s pushed the stock price even lower. 

This decline in stock price has pushed the effective dividend yield up to 5.9%. That’s far higher than most other dividend stocks. Which is why income-seeking investors need to take a closer look to see if TC Energy can sustain this payout for the foreseeable future. 

Dividend sustainability

TC Energy has earned a reputation as a reliable dividend stock. Its dividend payments have increased by an annual compound growth rate of between 8% and 10%. Likewise, nothing is expected to change in 2021, as economies rebound from COVID-19 and demand for oil and natural gas improve.

Over the past 12 months, TC Energy has reported a profit of $4.73 a share, which means it would be in a perfect position to pay investors $3.24 a share on an annualized basis. The fact that it is 68% of total earnings means it is manageable on all accounts. In other words, the dividend-payout ratio is sustainable. 

TC Energy stock has struggled to rebound in recent months owing to the uncertainties triggered by the Keystone XL Pipeline. With the government south of the border refusing to cooperate, there were fears that termination of the project would have significant repercussions on the company.

However, Keystone wasn’t the only megaproject on TC’s horizon. The company intends to deploy roughly $25 billion into other pipeline and energy infrastructure projects over the next few years. These should offset the losses from the Keystone pipeline shutdown. 

TC Energy’s prospects

However, that might not be the case as three phases of the project are already under operation. TC Energy has also moved to diversify its holdings in the energy business with a $1.7 billion investment in solar, wind, and batteries — segments expected to offer tremendous growth opportunities in the future.

TC Energy is still a solid pick in the energy industry, given its diversified revenue streams. The company remains well positioned to pay the 5.9% dividend yield given the amount of revenues it generates from transmitting oil and natural gas through pipelines, storing natural gas, and generating  power through natural gas and nuclear.

Bottom line

The dip in energy demand over the past year was a major blow for TC Energy. The cancellation of the controversial Keystone XL project was yet another setback. However, the company’s prospects are brighter than they appear. Energy demand is rebounding, and there are other projects worth $25 billion on the horizon. 

Meanwhile, the 5.9% dividend is sustainable for years to come. Add it to your income portfolio.