TC Energy (TSX:TRP) fell out of favour among dividend investors over the past two years amid rising interest rates and soaring costs on a major project. Contrarian investors seeking high-yield passive income are wondering if TRP stock is now undervalued and good to buy for a self-directed portfolio.
TC Energy stock
At the time of writing, TC Energy trades close to $55 per share. Bargain hunters who had the courage to jump in near the 12-month low around $44 are already sitting on some decent gains, but more upside should be on the way. TRP traded at $74 in 2022 before the big pullback.
The Bank of Canada recently cut its interest rate by 0.25%, and more reductions are expected heading into 2025 as inflation appears to be under control and heading back toward the 2% target. South of the border, the U.S. Federal Reserve is waiting a bit longer as inflation has been stickier in the United States. However, comments coming out of the Fed suggest the next move is likely to the downside and the first cut could be on the way before the end of the year. Lower borrowing costs will help TC Energy’s profits and should make more cash available for distributions or debt reduction.
On the operational side, TC Energy’s 670-km Coastal GasLink project reached mechanical completion late last year and is expected to start moving natural gas to a new liquified natural gas (LNG) export facility in 2025. The budget for the pipeline more than doubled to roughly $14.5 billion during the delayed construction process. This forced management to monetize $5.3 billion in assets in 2023 to reduce debt. Another $3 billion in asset sales is expected this year. These efforts will go a long way to shoring up the balance sheet to support the ongoing growth program.
TC Energy has increased the dividend annually for the past 24 years. Investors who buy the stock at the current price can get a 7% dividend yield.
The bottom line on TRP stock
TC Energy isn’t as cheap as it was earlier this year, but the stock should continue to move higher if interest rates come down steadily in the coming months. If you are looking for a high-yield stock to add to a portfolio focused on dividends and income, TRP deserves to be on your radar.
