Is it Too Late to Buy TC Energy Stock?

TC Energy is up 17% in recent months. Are more gains on the way?

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TC Energy (TSX:TRP) is up 17% since early October. Investors who like high-yield dividend stocks are wondering if TRP stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) portfolio focused on passive income.

TRP stock price

TC Energy trades for close to $53.50 at the time of writing. This is up from a low of around $45 that the stock closed out at a couple of times last year before a shift in market sentiment on the direction of interest rates triggered the rally.

TC Energy uses debt to fund part of its large capital program. The steep rise in interest rates in Canada and the United States over the past two years drove up borrowing costs for companies. As debt expenses rise, there is a negative impact on profits and the amount of cash that might be available for distributions. Markets expect the central banks to start cutting rates in 2024. This should provide a tailwind for TRP stock.

TC Energy had some issues with surging costs on a major project over the past couple of years. The Coastal GasLink pipeline had an original budget of about $6.2 billion when the company gave the 670 km pipeline development the green light in 2018. Coastal GasLink finally achieved mechanical completion in 2023, but the final bill is expected to be about $14.5 billion.

Management spent much of 2023 working to reduce debt. The company brought in $5.3 billion through the sale of interests in some American assets. TC Energy has at least another $3 billion in assets sales under discussion for 2024. The company also expects to unlock value for customers by spinning off the oil pipelines business this year. As such, most of the balance sheet pain should be in the rearview mirror.

Earnings

Challenges on the Coastal GasLink project garnered most of the market attention last year, but TC Energy’s overall asset portfolio performed better than expected. The company generated record operating and financial results in 2023, with comparable earnings per share rising 5% to $4.52.

Dividends

TC Energy raised the dividend by 3.2% for 2024. This is the 24th consecutive annual dividend increase by the board. Management expects the solid capital program to generate adequate cash flow growth to support annual increases of at least 3% over the medium term. The capital program for 2024 is expected to be at least $8.0 billion as the company moves ahead with new projects.

Investors who buy TRP stock at the current level can get a 7.2% dividend yield.

Should you buy TRP stock now?

TE Energy isn’t as cheap as it was a few months ago, but the stock is still down considerably from the $74 it reached in 2022. Management is doing a good job of reducing debt and shoring up the balance sheet to move ahead with the growth program.

Ongoing volatility should be expected, and it wouldn’t be a surprise to see a pullback after the big run over the past few months. However, the stock still looks attractive right now, and investors get paid well to ride out additional turbulence. If you have some cash to put to work in a TFSA targeting passive income, TRP stock 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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