High-Yield Investors: Should You Buy TC Energy Stock Now?

TC Energy is off the 2023 lows. Is more upside on the way for TRP?

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TC Energy (TSX:TRP) picked up a bit of a tailwind in recent weeks, but the stock is still down about 30% from the 2022 high. Investors seeking high-yield dividends are wondering if TRP is still cheap and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.

TRP stock

TC Energy trades for close to $51.50 at the time of writing compared to a closing low of around $45 in early October. The stock was as high as $74 in June last year before a pullback in the energy sector, and rising interest rates sent the stock into a downward trend.

TC Energy isn’t an oil or natural gas producer. The company is primarily a natural gas transmission and storage giant with some oil pipelines and power generation facilities. Changes in the prices of the energy commodities have little direct impact on TC Energy’s cash flow. As long as throughput is high on the pipelines and demand for storage remains robust, the assets should perform well.

This has been evident in 2023. TC Energy said it is on track to hit the high end of its financial guidance this year. That’s good news for investors worried that soaring costs on a major project and rising interest rates would derail the streak of steady dividend hikes.

TC Energy’s Coastal GasLink pipeline is now expected to cost about $14.5 billion. This is more than double the original budget. Fortunately, the company recently reached mechanical completion on the project, so investors can look forward to finally seeing the 670 km pipeline start generating revenue when natural gas begins to flow through the network from producers to a new liquified natural gas (LNG) export facility being built on the BC coast. In the summer update, LNG Canada said the facility was 85% complete and on track to start shipping fuel to international buyers in 2025.

TC Energy’s management team spent much of 2023 focused on raising cash to plug the hole caused by the higher Coastal GasLink expenses and reduce debt. The company sold a stake in some American assets for $5.3 billion and expects other deals to bring in an additional $3 billion next year. TC Energy is planning to spin off the oil pipelines business to unlock value and could potentially monetize assets in Mexico.

Dividend safety

Despite the construction challenges and the impact of higher borrowing costs, TC Energy says its growth program should generate enough new revenue and cash flow to support planned annual dividend increases of at least 3% over the medium term. The board has increased the distribution annually for more than two decades. At the time of writing, TRP stock provides a 7.2% dividend yield.

Should you buy TRP now?

TC Energy pays an attractive dividend that should continue to grow. With Coastal GasLink effectively finished and the balance sheet largely repaired, TC Energy should be in good shape heading into 2024. If you have some cash to put to work, TRP stock is probably still oversold at the current level and deserves to be on your radar for a portfolio targeting high-yield dividend stocks.

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.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

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