The pipeline stocks have been making up for lost time over the past two years, with shares of TC Energy (TSX:TRP) up over 46% in the time span. Indeed, that’s quite the gain for a dividend grower that typically commands a yield well north of the 6% mark. Today, shares sport a 5.24% dividend yield, not the highest it’s been in recent years, but still worth capturing, especially as TC and the rest of the midstream energy plays look to extend their rallies.
With quarterly earnings due today, shares of TRP are sure to be a major mover. After consolidating choppily since last October, I think the number could be make or break for TC. And while it’s tempting to play the name ahead of the big number after an 8% correction from recent highs, I think that steadily increasing a position through the year makes the most sense. Indeed, last year’s melt-up was quite towering. In fact, it makes the latest 8% dip seem like a tiny blip. Either way, I wouldn’t be all too surprised if TC were to fall by north of 10% over the short term.
TRP shares could fluctuate going into earnings. Look for a dip to buy!
Should shares continue to correct and that yield gets closer to 6.5%, I’d be inclined to be a more aggressive buyer of the name. For now, the stock looks relatively cheap at 16 times trailing price-to-earnings (P/E) and the 0.95 beta, which entails about as much volatility as the broad stock market, may offer investors good bang for their buck if they’re at all worried about a valuation reset centred in the red-hot tech names.
If such a tech wreck were to hit in the second half, TRP stock is one of the names that I wouldn’t expect to fall nearly as much as the broad market. In any case, earnings season is here for the pipelines, and if the numbers are good, perhaps TRP stock’s long-awaited breakout moment will happen.
As the technical analysts tend to say, the longer the “base” (of consolidation), the higher in space (the more upside a breakout can have once it finally does hit). For TC, the fundamentals, valuation, and technicals seem to be in alignment. And that could make the name quite timely going into August. Given this, I view TRP stock as a great buy right here. Though I would seek to build a position over time, in case the pipeline rally is due for a bit of a pullback.
My only concerns about TRP stock
At the end of the day, TC Energy is one of the most underrated cash cows in the Canadian market. Sure, it’s not the highest-yielding or the cheapest midstream energy name out there. But with smart investments being made in the right places, and with that, the dividend growth is going to come. For now, management needs to keep chipping away at the debt load.
It’s been quite elevated, at least in my opinion, with total debt sitting at around $62 billion, at least at the time of writing. That’s a lot of debt for a $67 billion firm. In any case, TC has stable cash flows and a pathway to reducing that debt rather rapidly. Given such, I’d not worry about the debt load as the firm moves full speed ahead.
