The recent decline in oil prices has driven shares of energy companies lower year to date. Several oil and gas companies reported record profits in 2022, allowing them to distribute a significant portion of earnings to investors via dividends.
So, the recent selloff provides investors a chance to buy oversold dividend stocks with tasty yields in April 2023. One such TSX energy stock is TC Energy (TSX:TRP). Down 28% from all-time highs, TC Energy stock currently offers you a dividend yield of 6.8%.
Is TC Energy stock a buy or a sell in 2023?
One of the largest energy infrastructure companies in the world, TC Energy has five business segments. It operates a network of natural gas pipelines spanning 93,700 kilometres, allowing TC Energy to transport natural gas from supply basins to distribution companies, power plants, LNG export terminals, and industrial facilities.
It owns regulated natural gas storage facilities with a working gas capacity of 532 billion cubic feet. Additionally, its liquid pipelines system spans close to 5,000 kilometres connecting Alberta’s crude oil pipelines to refining markets in Illinois and Texas.
TC Energy also owns seven power-generation facilities with a combined capacity of 4,300 megawatts. These facilities are located in Canada and are powered by natural gas and nuclear fuel sources.
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These cash-generating assets allow TC Energy to pay shareholders annual dividends of $3.72 per share, translating to a forward yield of 6.8%. An investment of $10,000 in TRP stock would let investors buy 182 shares of the energy giant, resulting in annual dividends of $677.
These payouts have risen by 6.4% in the last two decades, making TRP among the most popular dividend stocks on the TSX.
What’s next for TRP stock and investors?
An inflationary environment in 2022 allowed TC Energy to increase comparable EBITDA (earnings before interest, tax, depreciation, and amortization) by 6% year over year. This momentum should continue in 2023, as TC Energy has allocated $34 billion towards capital expenditures which should expand its utility-like assets and drive future cash flows higher.
The company expects EBITDA to rise another 6% year over year, allowing it to increase dividends for the 23rd consecutive year in 2023.
TC Energy is also advancing its $5 billion asset-divestiture program. It will sell non-core assets, and the proceeds will be used to strengthen its balance sheet and pursue growth opportunities.
TC Energy explains its assets are rate regulated and underpinned by long-term contracts, providing stability to its cash flows across economic cycles. While it remains part of a cyclical industry, TC Energy has increased dividends amid the financial crisis of 2008, the COVID-19 pandemic, and the ongoing period of rising interest rates.
A key driver of TC Energy’s EBITDA growth was the company’s strong natural gas pipeline business in Canada, Mexico, and the United States.
Since April 2003, TRP stock has returned 152%. After adjusting for dividends, total returns are closer to 500%. Comparatively, the S&P 500 and TSX indices have surged 587% and 458%, respectively, in this period.
Despite its stellar gains, TRP stock is trading at a discount of 10% to consensus price target estimates. After accounting for dividends, total returns are closer to 17%.