TC Energy (TSX: TRP) is up 28% in the past year. Investors who missed the rally are wondering if TRP stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and total returns.
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TC Energy share price
TC Energy trades near $67 per share at the time of writing. The stock is down about $3 in the past two weeks, giving investors a chance to buy on a dip.
The rebound actually started in the summer of 2023 after a 12-month downturn that saw the stock slide from $74 to around $45. Rising interest rates in Canada and the United States caused most of the pain. Pipeline companies, like TC Energy, use debt as part of their funding for growth projects that can cost billions of dollars and sometimes take years to complete.
A good example is TC Energy’s 670 kilometres Coastal GasLink project that received the green light in 2018, but didn’t reach mechanical completion until late 2023 and came in at an estimated cost of $14.5 billion, which was more than double the original budget. The pipeline is now in commercial service and will move natural gas from Canadian producers to the new LNG Canada export facility on the coast of British Columbia. TC Energy had to take on extra debt to get the project completed. The surge in borrowing costs in 2022 and 2023 likely made investors nervous that the dividend could be at risk of a cut.
The ensuing recovery in the stock over the past two years has been impressive. An initial bounce came as TC Energy made good progress on monetizing non-core assets to shore up the balance sheet. Getting Coastal GasLink completed also helped. The bank of Canada and the U.S. Federal Reserve then provided an extra boost through rate cuts that started in the second half of 2024.
Outlook
TC Energy is making good progress on other projects. The company’s 715 km Southeast Gateway natural gas pipeline in Mexico came in 13% under budget and was completed in less than three years. It has 100% of its capacity contracted, so it will add a nice boost to revenue in the second half of 2025 and deliver solid cash flow for decades. Mexico plans to build several new gas-fired power generation facilities in the coming years. The pipeline will play a key role in getting the natural gas to these sites.
The United States is also ramping up the construction of gas-fired power generation to supply electricity for AI data centres. TC Energy’s extensive natural gas transmission and storage infrastructure in Canada and the United States puts it in a good position to benefit from the trend.
TC Energy is also a player in nuclear power through its Bruce Power asset in Ontario.
The company is targeting an average capital program of about $6 billion per year over the medium term to drive revenue and cash flow growth. This should support planned annual dividend increases of 3% to 5%. TC Energy raised the dividend in each of the past 25 years. Investors who buy the stock at the current level can get a dividend yield of 5%.
The bottom line
Near-term volatility in the markets is expected, but TC Energy pays an attractive dividend that should continue to grow. The balance sheet is in good shape and the growth program looks robust. If you have some cash to put to work in a dividend portfolio, this stock deserves to be on your radar.
