Up Over 24%: Will the Uptrend in TC Energy (TSX:TRP) Continue?

Given the favourable environment and TC Energy’s growth initiatives, healthy dividend yield, and attractive valuation, I am bullish on it.

| More on:
pipe metal texture inside

Image source: Getty Images

TC Energy (TSX:TRP)(NYSE:TRP) is a midstream energy company that owns and operates a grid of natural gas and liquids pipelines, power–generating assets, and storage facilities. Supported by its solid fourth-quarter performance and rising energy demand due to economic expansion, the company has returned close to 24% for this year, comfortably outperforming the broader equity market. Can the uptrend continue?

Before answering that question, let’s first look at TC Energy’s fourth-quarter performance and growth potential.

TC Energy’s fourth-quarter performance

For the quarter, TC Energy reported adjusted net profits of $1 billion, or $1.06 per share, compared to $1.15 per share in the corresponding quarter of the previous year. The decline was primarily due to the issuance of common shares to raise funds to complete the acquisition of TC Pipelines in the first quarter of 2021.

However, its adjusted EBITDA increased by $81 million to $2.4 billion due to an increased contribution from the U.S. Natural Gas Pipelines segment and the Power and Storage segment. However, the decline in contributions from the Liquids Pipelines segment and the Canadian Natural Gas Pipelines segment offset some of the increases. Meanwhile, the company’s financial position looks healthy, with the company having $12.4 billion of unused debt facilities as of February 7.

Growth prospects

Amid economic expansion, the energy demand is rising, benefiting TC Energy. The company had placed $4.1 billion of projects into service last year. The company is progressing with its $24 billion, including $6.5 billion of projects expected to enter service in 2022. These projects could expand and extend the company’s presence across North America. Also, these projects are underpinned by cost-of-service regulations or take-or-pay contracts, thus delivering stable and predictable financials in the coming years.

Supported by its strong underlying business and its investments, TC Energy’s management expects to grow its adjusted EBITDA at a CAGR of 5% through 2026. So, the company’s outlook looks healthy.

TC Energy’s dividend and valuation

TC Energy has an excellent track record of rewarding its shareholders with dividend hikes. It has increased its dividend uninterrupted for the last 22 years at a CAGR of 7%. Its stable and predictable cash flows from regulated assets have allowed the company to increase its dividend. The company currently pays $0.90 per share, with its forward yield at 4.97%. Given its optimistic outlook, the company’s management hopes to increase its dividend by 3-5% in the near to medium term.

Despite rising close to 24% this year, the company is still trading at an attractive price-to-earnings multiple of 17.1.

Bottom line

Amid the ongoing Russia-Ukraine war and the sanctions on Russian oil, I expect oil prices to trade at elevated levels in the near to medium term. So, the increased oil prices could drive the demand for TC Energy’s services, thus increasing its asset utilization rate and boosting its financials. So, given the favourable environment and its growth initiatives, healthy dividend yield, and attractive valuation, I am bullish on TC Energy.

Meanwhile, analysts favour a “hold” rating for TC Energy. Of the 23 analysts covering the stock, 14 have issued a “hold” rating, while six have given a “buy” rating, and the remaining three have given a “sell” recommendation. Analysts’ consensus price target represents a potential fall of 1.4% from its current levels. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.

More on Energy Stocks

Value for money
Energy Stocks

Scared of a Market Rout? Buy These 2 Value Stocks

Investors fearing a market rout can take positions in two value stocks from the top-performing energy sector.

Read more »

oil and natural gas
Energy Stocks

Suncor Energy Stock Could Have More Room to Run

Suncor Energy (TSX:SU)(NYSE:SU) stock is one of many big oil plays that may be too undervalued for its own good.

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

3 Energy Stocks I’d Buy in 2022

In 2022, I'm buying energy stocks like Suncor Energy Inc (TSX:SU)(NYSE:SU).

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

Canadian Oil Stocks Are Still Bullish

Suncor Energy Inc (TSX:SU)(NYSE:SU) stock has rallied this year. It may still have further to run.

Read more »

Utility companies can be good stock investments.
Energy Stocks

Time to Buy TransAlta Stock?

Shares of this utility are up significantly in the past year and more gains could be on the way.

Read more »

Natural gas prices are rising, making energy companies a good investment.
Energy Stocks

Bonterra Energy Stock Has Doubled: Is There More Upside in 2022?

It's been one of the best-performing TSX small-cap energy stocks in 2022, yet shares are cheap today.

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

3 Small-Cap TSX Energy Stocks That Doubled This Year

TSX energy stocks at large have beat broader markets this year. But that's nothing compared to these small caps.

Read more »

Oil pumps against sunset
Energy Stocks

TFSA Wealth: Is Suncor Stock Still a Buy?

Suncor stock still looks cheap. Here's why.

Read more »