TC Energy Stock: Should You Buy, Sell, or Hold?

TC Energy is on a roll. How high could TRP stock go next year?

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Gas pipelines

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TC Energy (TSX:TRP) is up more than 15% since early October. Investors who missed the bounce are wondering if TRP stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) targeting passive income or a Registered Retirement Savings Plan (RRSP) focused on total returns.

TRP stock

TC Energy trades for close to $52.50 at the time of writing compared to a 2023 low of around $45. The jump in recent weeks has the stock back to its best level since July, but it is still way off the $74 it reached in 2022.

A combination of rising interest rates and troubles on a major project drove down the share price over the past year. TC Energy uses debt to help fund its capital program. As borrowing costs increase, profits and cash that is available to reduce debt or pay dividends are impacted.

Pipeline projects often cost billions of dollars and take years to build. TC Energy’s Coastal GasLink pipeline is a good example. Management gave the 670-km natural gas pipeline project the green light in 2018. Pandemic delays, bad weather, soaring material costs, and issues with contractors have driven up the final tally to about $14.5 billion from the original budget of less than $7 billion. Coastal GasLink recently achieved mechanical completion, so most of the pain should be in the rearview mirror.

Investors might have focused too much on the project’s challenges this year. TC Energy’s overall business has actually performed well. Management now expects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to grow by about 8% in 2023 compared to 2022.

Efforts to strengthen the balance sheet are bearing fruit. TC Energy sold a stake in some American assets this year for $5.3 billion. Additional monetization efforts are expected to raise $3 billion in 2024. TC Energy intends to spin off its oil pipeline business and could potentially sell assets in Mexico to raise cash to support the ongoing capital projects.

Dividend

TC Energy has increased the dividend annually for more than 20 years. The company expects revenue and cash flow growth from new assets to support planned annual dividend increases of at least 3% over the medium term.

At the current share price, TRP stock provides a 7% dividend yield.

Should you buy TC Energy now?

Markets are increasingly betting that interest rates will fall in Canada and the United States next year. As rates decline, there should be renewed interest in battered pipeline stocks, including TC Energy.

Investors should expect some ongoing volatility, but TRP stock still looks cheap right now, and you get paid well to ride out additional turbulence. If you have some cash to put to work in a portfolio focused on high-yield stocks, TC Energy deserves to be on your radar.

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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