Is Now the Right Time to Buy TC Energy Stock?

TC Energy stock is out of favour. Is it time to buy?

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TC Energy (TSX:TRP) is down more than 25% in the past year. Contrarian investors seeking good dividend yields and a shot a decent capital gains are wondering if TRP stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP).

TC Energy overview

TC Energy is a major player in the North American energy infrastructure sector with natural gas pipelines, natural gas storage, oil pipelines, and power-generation facilities located in Canada, the United States, and Mexico.

The company is primarily known for its natural gas transmission network that includes more than 93,000 km of pipelines that play a strategic role in getting the fuel from producers to storage sites, utilities, and export facilities.

TC Energy stock trades near $52.50 per share at the time of writing. The stock was as high as $74 in June last year.

Part of the pullback is due to the broader market correction that occurred in the energy sector through the end of last year and into 2023. TC Energy, however, has also had some internal issues that have upset investors.

The biggest hit has come as a result of the ballooning cost of a major project. TC Energy is building the Coastal GasLink pipeline that will connect natural gas producers in northeastern British Columbia to a new liquified natural gas (LNG) facility on the B.C. coast, where the gas will be cooled to liquid form and shipped to overseas buyers.

International demand for reliable Canadian and U.S. natural gas supplies is expected to grow in the coming years. TC Energy’s vast natural gas infrastructure places the company in a good position to benefit.

Unfortunately, the Coastal GasLink project will now cost an estimated $14.5 billion, which is more than double the initial estimate. Pandemic delays, permitting issues, rising material and labour costs, contractor disputes, and challenging weather conditions have all combined to drive up construction expenses.

In the fourth quarter (Q4) of 2022 report TC Energy said Coastal GasLink is 84% complete and mechanical completion is targeted for the end of 2023 with commissioning and restoration work to continue through 2024 and 2025. In the event the construction process extends into 2024, there could be up to $1.2 billion in additional costs.

What about the upside?

The bulk of the bad news should be in the rearview mirror on the project. TC Energy has a total of $34 billion in capital projects that will drive revenue and cash flow growth in the coming years. Despite the Coastal GasLink challenges, the board still expects to deliver annual dividend increases of 3-5% over the medium term.

This is good news for investors who are seeking steady passive income. TC Energy has increased the payout annually for more than two decades. Investors who buy the stock at the current price can get a 7% dividend yield.

Is TC Energy stock a buy today?

The trend isn’t your friend right now and additional downside is certainly possible in the near term. However, buy-and-hold investors with a contrarian investing strategy might want to start adding TC Energy to their TFSA or RRSP portfolios focused on dividends. The payout should be safe, so you get paid well to ride out additional volatility and wait for the recovery.

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. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

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