As the tax month ends, it is time to plan your May 2023 schedule. While expenses are always on top of your list, so should investments. Instead of making haste and buying any stock that comes to your mind, it is better to scan the perimetre, look at the market and the value drivers, and buy stocks currently undervalued.
While you can’t time the market, you can buy fundamentally strong stocks at their weak points and lock in a growth rally and a higher dividend yield.
A TSX stock that gives a 6.65% dividend yield
In April, TSX Composite Index rallied 2.6%, as bank and oil stocks recovered slightly from the March dip. Even TC Energy (TSX:TRP) stock rallied 6.58% to $56.13 but was still closer to its 52-week low of $50. Now is an opportunity to buy a stock that may seem undervalued, given its five-year growth potential.
TC Energy reported its first-quarter earnings. Its net income per share surged 358% to $1.29 from $0.36 in the year-ago quarter. But this growth comes, as the last year’s earnings were affected by a one-off instance. TC Energy reported a $3 billion additional cost of the Coastal GasLink project. The project has gone way over budget, and the company had to take the hit of the excess cost.
This project was a bottleneck that pulled TC Energy stock down 15% from its November 2022 high. The good news is the project is 87% complete, and the company expects to complete the mechanical work by late 2023. The return of net income to its normalcy in the first quarter signals the beginning of a rally.
How the next 10 years look for TC Energy stock
The Coastal GasLink project is just the beginning. TC Energy plans to spend $11.5 billion to $12 billion capital this year on expansion, maintenance, and new gas pipelines. TC Energy aims to tap the North American liquefied natural gas (LNG) export market. As these pipelines become operational, TC Energy will have more income streams, creating an opportunity for more dividend growth.
Moreover, it is on track to complete the sale of $5 billion in assets by the end of the year. While the company did not reveal which projects it is divesting, they are likely to be some oil pipelines, as the company is increasing exposure to gas. TC Energy plans to use the sales proceeds from these assets to deleverage its balance sheet and reduce the interest burden. New income streams and divesting non-core or low-yielding assets could improve efficiency.
Should you buy TC Energy stock now?
Canada is an oil and gas-rich country that exports 99% of its oil to the United States. The major source of oil and gas transportation is pipelines. While the energy industry is transitioning to green energy, the process is slow. Green energy cannot completely replace oil and gas in the next 10 years. And with every passing year, it is becoming tougher to build new pipelines, given the environmental concerns that come with the project.
The existing pipelines will become more valuable, as pipelines are the most efficient medium of transmitting oil and gas. And with the United States’s strategic oil reserve at its low, the oil transmission from Canada to the United States is likely to keep the oil and gas pipelines operating at full capacity in 2023.
If you buy TC Energy stock now, you can still lock in a 6.65% dividend yield. TC Energy aims to grow its dividend by 3-5% for the next few years. The 2022 fundamentals might be weak, but the next 10 years look bright for the stock.
