The energy infrastructure space has come under a lot of pressure in North America in 2020. Producers have been impacted severely by the pandemic, but midstream companies have managed to hold their own. TC Energy (TSX:TRP)(NYSE:TRP) has been one such company, but it’s fought a pitched battle over the Keystone XL Pipeline. However, the prospects for the company haven’t dimmed. The company will report its fourth-quarter numbers on February 18. Let’s take a look at why the stock is an exciting buy right now.
TC Energy: Focus on stability and growth
TC Energy is looking into other growth opportunities in the future that will not create uncertain environmental and regulatory issues as the Keystone XL project did. Therefore, the cancellation of the project was an advantage for the company.
The market forecast states that the demand for natural gas will increase by 43 billion cubic feet per day for the next 20 years, which is a big opportunity for TC Energy to increase its revenue, as it already has a competitive edge over others in the market.
The company has maintained a steady income over time. Almost 95% of TC Energy’s revenue is derived from long-term or regulated contracted assets of the company. This is the primary reason why TC Energy has maintained its growth and stability in dividend distribution over the years.
TC Energy has always maintained its supply of energy in the market, as per the demand irrespective of internal changes. The cost of capital of TC Energy is around $20 billion, and the company is also expecting a growth of 10% in dividend in 2021 and between 5% and 7% thereafter.
Although the fourth-quarter results on February 18, 2021, will state the actual financial health of the company, Q3 numbers gave us an idea of the functional ability of TC Energy. The company successfully increased free cash flows in the third quarter from $1.58 billion in the prior-year period to $1.78 billion in 2020.
The COVID-19 pandemic affected the prices of the commodities and impacted the financial market but the company is now focused on areas like Coastal GasLink, NGTL System, and others so that it can invest in growth projects. Net cash of the company also increased to $1.8 billion, which indicates an improved liquidity position.
TC Energy’s dividend payments will be sustainable
The dividend-payout ability of the company attracts a lot of investors, as it signifies steady (and increasing) returns. As of today, the dividend yield of the company is 5.73%. While a lot of midstream companies cut down dividend distribution when the price of crude oil fell, TC Energy maintained its dividend distribution.
TC Energy is currently trading at $56.59, and analysts have given it a target of $68.57 in the next 12 months. That’s an upside of over 21% from current levels. Crude oil prices have also been steadily rising. Oil is almost touching US$60 now, and this is great news for TC Energy shareholders. Considering the past payout record and future growth prospects of the company, TC Energy is a stock worth adding to one’s portfolio.
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Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.