The 7.2 Percent Dividend Stock Set to Dominate The TSX

There are relatively few energy stocks in Canada that are well positioned to survive or even thrive in the global shift towards renewables in the coming decades.

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The TSX is bullish right now, and this trend is being driven by the positive momentum of two of the heaviest sectors in the market — finance and energy, both of which have been going up for a while. However, not all individual stocks from these sectors are moving at the same impressive pace, and many of them are recovering from a slump.

This makes it a great time to buy the dividend-paying stocks that are in the process of recovering from the slump and have started riding the bullish momentum of the market because they offer a healthy blend of high-yield (thanks to the slump) and capital appreciation potential (that the bullish momentum will yield). If you are leaning towards energy stocks, TC Energy (TSX:TRP) is a great pick.

The company

There are several reasons why TC Energy stands out from the crowd, even though many other energy companies have offered an even more compelling performance in the recent past. The first is its pipeline business model.

Most pipeline companies rely upon long-term energy transportation contracts that are sheltered from price fluctuations. This makes their revenues comparable to utilities — safe and consistent, although not on the same scale.

Another strong point in the company’s favour is its ownership structure. The bulk of the company — i.e., about 83% — is owned by institutions, which lends the stock a lot of stability, albeit at the cost of rapid growth, because institutional investors are usually less active than public investors.

Another reason to consider this stock as a dominant TSX pick is its energy focus. The natural gas operations (Canadian, U.S., and Mexican) make up the bulk of its earnings, with a relatively small amount coming from oil transportation and power business.

The company is planning on becoming a pure-play natural gas midstream giant by divesting its oil transportation pipelines. It’s an edge because oil demand may start to decline steadily as more electric vehicles enter the global transportation mix and the shift toward renewables expedites.

However, as a far cleaner fossil fuel, natural gas may have a larger buffer than oil, and it’s already considered a viable “bridge” fuel between here and a fully renewable-based future.

The stock

As a Dividend Aristocrat who has grown its payouts for 22 consecutive years, TC Energy is a solid dividend pick in any given market. However, it’s one of the few heavily discounted energy stocks in the market right now since most of the sector thrived in the post-pandemic bull market phase and shot up considerably.

The 30% discount on the stock is an attractive enough number, especially for an energy company that’s a far safer long-term bet than most of the sector.

However, its impact on the dividend yield has been even more impressive. Even now, when the stock has recovered over 12.8% of its value from the full depth of the slump, the yield is an attractive 7.2%.

This is quite close to the ideal intersection of high yield and a healthy capital-appreciation potential because the stock is now recovering. If it remains bullish for the long term, you can experience a decent rise in your capital while cashing in dividends at a high yield.

Foolish takeaway

TC Energy is also among the safest bets in the Canadian energy sector right now, which may be winding up for a correction after the post-pandemic bullish phase.

The company has also forecasted that its core earnings will be at least 5-7% higher than in 2023, and if the forecast proves true, it will generate more optimism around the stock, expediting or sustaining a good growth pace.

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.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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