As dividends are not guaranteed, it’s advisable to take a closer look at a company’s financials to analyze if the payouts are sustainable over time and across market cycles. Several dividend stocks trading on the TSX offer investors a dividend, but just a handful of these companies are investable.
TSX energy giant TC Energy (TSX:TRP) currently offers investors a tasty dividend yield of 7.7%. Let’s see if you should consider investing in this blue-chip dividend stock right now.
Is TC Energy stock a good buy?
TC Energy is a diversified energy infrastructure company whose business segments include natural gas pipelines, liquids pipelines, and power and energy solutions. It owns one of North America’s largest pipeline networks extending over 93,700 kilometers, tapping into every major supply basin. All tallied, it transports 25% of the continent’s gas requirements.
TC Energy also owns and operates one of the largest natural gas storage operators, with 650 billion cubic feet of capacity. Its Liquids Pipelines business connects one of the largest oil reserves to the largest refining markets in the U.S. Midwest and Gulf Coast.
The company’s power and energy solutions generate 4,600 megawatts of electricity, 70% of which comes from emission-less nuclear energy.
A majority of TC Energy’s cash flows are tied to long-term contracts, which are tied to inflation, making it almost immune to fluctuations in oil prices. With these predictable cash flows, it can pay investors an annual dividend of $3.72 per share. TC Energy has increased dividends at an annual rate of 5% in the last 28 years, showcasing the resiliency of its business model.
TC Energy announces spin-off
Recently, TC Energy announced plans to spin off its Liquids Pipelines business into independent publicly listed companies. It explained the corporate action would provide TC Energy and the new Liquids Pipelines company with the flexibility to pursue growth objectives and enhance shareholder wealth.
TC Energy will focus on providing natural gas, and power and energy solutions driven by nuclear and clean energy. The new liquids pipeline company will be armed with strategic assets, which will continue to increase capacity on underutilized systems and connectivity to delivery points.
Once the spin-off is over, the cumulative annual dividend payout will still amount to $3.72 per share for the two companies.
What is the target price for TC Energy stock?
Since 2000, TC Energy stock has returned 11% annually to investors after adjusting for dividends and easily outpacing the broader markets. In the last five years, the company has allocated $45 billion towards capital expenditures to expand its base of cash-generating assets and consistently increase dividends.
It continues to execute its capital program, which includes the Coastal GasLink and Southeast Gateway. TC Energy is also strengthening its balance sheet and reducing debt to lower interest costs. For instance, it is selling a 40% equity stake in the Columbia Gulf and Columbia gas systems for $5.2 billion, the proceeds of which will be used to lower balance sheet debt.
TC Energy stock is trading at a discount of 10% to consensus price target estimates. After including dividends, total returns will be closer to 18%.
