Canadian investors might ignore dividend stocks when they’re trading near all-time highs, and I get it. These dividend stocks might not appear to offer a valuable share price. Furthermore, it’s not like the share price is surging up 400%, so 30% in a year isn’t the next “to the moon” stock to get in on.
But to me, this offers an opportunity in itself! You get a growth stock that provides dividends. Isn’t that kind of the goal when it comes to investing? So, if you’re with me, let’s look at why TC Energy (TSX:TRP) could be that golden opportunity, even with shares up 30% in the last year alone.
Why you should consider the dividend stock
First, let’s look at why investors might want to consider this dividend stock for the one thing it offers immediately: income. TRP stock offers an annual dividend of $3.40, with a forward yield of about 4.65% as of writing. This is certainly an attractive level for Canadian large-cap stocks.
What’s more, its recent earnings demonstrate the dividend stock remains strong. Its operating cash flow is strong at $7.53 billion, with comparable funds generated from operations covering dividend payments in recent periods. In fact, its six-month funds from operations (FFO) sit at $3.9 billion. Meanwhile, dividends declared are at just $1.7 billion for that same time.
Then there’s the business support itself. TRP is regulated with long-term contracts from its pipeline and power businesses. These produce stable, predictable cash flows that support its distributions even in commodity cycles. Altogether, it’s a dividend champion that’s seen years of consecutive dividend increases. In fact, right now, here’s what a $21,000 investment could bring in at writing!
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| TRP | $74.65 | 281 | $3.40 | $955 | Quarterly | $20,972 |
Considerations
Alright, nothing is perfect, and there are a few risks to consider before making this some kind of core investment in your portfolio. For instance, the dividend stock has high leverage and a heavy capital expenditure. Right now, its total debt sits at $59.5 billion with a debt-to-equity (D/E) ratio at 160%. Furthermore, its leveraged free cash flow (FCF) is down $2.04 billion, so after debt and capital expenditure, cash available to shareholders could lead to pressure in years of heavy spending.
As for the actual effects on dividends, the payout ratio is a bit high at about 85%. It’s high enough that the margin for error is limited if cash flow dips. Plus, pipelines face regulatory approvals, political pushback, and long-term energy transition pressure. So, there are certainly risks on deck for this dividend stock.
However, a lot of these risks are “what ifs.” Meanwhile, management remains confident after a strong second quarter, with record flows in some systems and a pipeline of growth projects. Projects that are largely contractually supported. Therefore, dividend coverage seems given, especially given the defensive nature of TRP’s assets.
Foolish takeaway
So, is TRP stock still a buy as share prices move higher? In my very humble opinion, yes. It can certainly provide lifetime income from its ongoing dividend, but there are returns to consider as well. Whether it’s from its current record production or its ongoing pipeline of contractually supported projects, the dividend stock looks set up for any type of investor. And while there are risks, these are from scenarios that don’t look too likely in the near term. So, if you’re looking for income that lasts the test of time, TRP could be one to watch.
