Blue-chip dividend stocks can help investors create a stable stream of passive income. Typically, blue-chip companies enjoy a wide economic moat and a leadership position in the segments where they operate.
It allows them to maintain cash flows across market cycles and keep raising dividends each year, increasing the effective yield significantly over time. In addition to a tasty dividend yield, shareholders should also benefit from long-term capital gains.
One such high dividend TSX stock is TC Energy (TSX:TRP), which currently offers you a yield of 7.6%. In the last two decades, TC Energy stock has returned 100% to shareholders. But if you account for dividends, total returns will be closer to 382%, which is in line with the TSX index.
Here’s why it makes sense to invest in TC Energy right now.
Is TC Energy stock a good buy today?
TC Energy is among the largest energy infrastructure companies in Canada. It owns and operates a large network of natural gas pipelines and transports 25% of the gas consumed in North America. Additionally, it has a liquids pipeline and energy solutions business, which diversifies its revenue base.
TC Energy recently unveiled plans to split into two separate entities and spin off the liquids pipeline business into another publicly listed company. According to TC Energy, the spin-off should unlock additional growth opportunities, allowing both entities to pay a growing and sustainable dividend.
TC Energy stated the spin-off will be completed in the second half of 2024. Once the transaction is closed, TC Energy will operate as a natural gas pipeline and energy solutions company, focusing on gas, nuclear, and clean energy. The liquids pipeline business will operate 3,000 miles of pipelines in Canada and the U.S., which includes the Keystone Pipeline.
Will TC Energy stock still pay a dividend?
TC Energy pays shareholders an annual dividend of $3.72 per share. These payouts have grown by 6.4% annually in the last 20 years, showcasing the resiliency of its business model. A majority of TC Energy’s cash flows are tied to long-term contracts, which are indexed to inflation, shielding it from fluctuations in commodity prices.
Prior to the spin-off, TC Energy forecasted it could grow comparable EBITDA (earnings before interest, tax, depreciation, and amortization) by 6% annually through 2026, which would allow it to raise the dividend between 3% and 5% annually.
The company expects to maintain the annual dividend payout post the spin-off, enabling it to retain cash to strengthen the balance sheet and invest in capital projects.
TC Energy explained it would grow dividends by at least 3% each year while the liquids pipelines entity should increase payouts between 2% and 3% annually, indicating a sustainable payout ratio of around 50% for both companies.
What is the target price for TC Energy stock?
Due to falling oil prices in the past year, TC Energy stock is down 33% from all-time highs. Priced at 12 times forward earnings, the TSX dividend stock is quite cheap, given its high yield and earnings growth estimates.
Income-seeking investors can consider investing in this TSX giant to benefit from a steady and rising dividend payout.
