TC Energy (TSX:TRP) is up 31% in 2024. Investors who missed the rally are wondering if TC Energy is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and total returns.
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TC Energy’s share price
TC Energy (TSX:TRP) trades near $68.50 at the time of writing. The stock was as low as $48 last spring but still sits below the $74 it reached in 2022 before aggressive interest rate hikes in Canada and the United States triggered a pullback in the energy infrastructure sector.
TC Energy uses debt to fund a good chunk of its development projects, which can take years to complete and often have budgets of billions of dollars. The company’s 670-km Coastal GasLink pipeline is a good example. TC Energy gave the project the green light in 2018 with an estimated budget of $6.6 billion. The project reached mechanical completion in late 2023 and is expected to have a final cost of close to $14.5 billion. The pipeline will carry natural gas from Canadian producers to a new liquified natural gas (LNG) export facility on the coast of British Columbia.
Rising interest rates in 2022 and 2023 drove up borrowing costs. This is largely why investors shunned the stock over that timeframe. The rebound picked up momentum this summer in recent months on rate cuts from the Bank of Canada and the U.S. Federal Reserve.
Opportunities
TC Energy did a good job of monetizing non-core assets over the past 18 months to reduce its debt load and stabilize the balance sheet enough to pursue the rest of the capital program, which is expected to include investments of about $6 billion per year over the medium term. In 2025, the company expects to see Coastal GasLink and another large pipeline project located in Mexico go into commercial operation 2025. The new assets will boost revenue and cash flow to help support dividend growth.
TC Energy is primarily a natural gas storage and transmission business with some power-generation assets. The company completed a spinoff of its oil pipeline business in 2024. Natural gas demand is expected to grow in the coming years as gas-fired power-generation facilities are built to supply electricity for artificial intelligencec data centres.
Risks
Inflation has ticked up in the United States and Canada in the past month. The U.S. economy remains in good shape, and the job market is strong. These conditions, along with the potential inflationary impact of proposed tariffs in 2025 by Donald Trump, could force the U.S. central bank to put rate cuts on hold or even increase rates to keep inflation under control. In that scenario, TC Energy and its pipeline peers would likely see their share prices come under renewed pressure.
Dividends
TC Energy raised its dividend in each of the past 24 years. Investors should see the trend continue as the company makes progress on its growth initiatives. Investors who buy TRP stock at the current level can get a dividend yield of 4.8%.
Time to buy TRP stock?
Investors should expect a pullback at some point in the coming months due to the uncertainties surrounding future rate cuts. That being said, the stock offers a good dividend that should continue to grow, so you get paid well to ride out any turbulence. If you have a buy-and-hold investing strategy, TRP stock deserves to be on your radar. It might make sense to take a small position at the current level and look to add to the holdings on a pullback.
