Canadian equity markets have become increasingly volatile in recent days amid fluctuations in commodity prices, rising geopolitical tensions, and stretched valuations. In this uncertain environment, investors can enhance portfolio resilience by adding high-quality dividend stocks. Thanks to their consistent payouts and stable business models, these companies tend to be less sensitive to market swings while providing dependable passive income.
Against this backdrop, let’s evaluate TC Energy (TSX: TRP), which currently offers a forward dividend yield of 4.1%. By examining its recent performance, growth outlook, dividend track record, and valuation, we can determine whether it is an attractive option for income-focused investors.
To begin, let’s take a closer look at TC Energy’s fourth-quarter performance.
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TC Energy’s business and fourth-quarter performance
TC Energy is one of North America’s largest pipeline operators. In October 2024, it spun off its liquids pipeline business to sharpen its focus on core natural gas pipeline and power generation operations. The company now delivers more than 30% of the natural gas consumed across North America and operates power-generation assets with a total capacity of 4.7 gigawatts. Supported by rate-regulated frameworks and long-term take-or-pay contracts, TC Energy generates stable and predictable cash flows, which have enabled it to increase its dividend for 26 consecutive years. With a quarterly dividend of $0.8775 per share, the stock currently offers a forward yield of approximately 4.2%.
In the fourth quarter, TC Energy reported adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $2.96 billion, up 13.2% year over year, driven by strong contributions from its Canadian, U.S., and Mexican natural gas pipeline segments. However, adjusted EBITDA from the power and energy solutions segment declined 36.4%, partially offsetting the gains from its pipeline operations.
However, its adjusted earnings per share (EPS) fell 6.7% to $0.98 due to higher depreciation and amortization expenses, increased interest costs, and higher tax expenses. On a more positive note, comparable funds generated from operations rose 37.7% to $2.3 billion. The company also continued to improve its financial position, with its adjusted debt-to-adjusted comparable EBITDA ratio at 4.8 times, progressing toward its long-term target of 4.75 times.
With its recent performance in mind, let’s now examine TC Energy’s growth prospects.
TC Energy’s growth prospects
Looking ahead, TC Energy expects North American natural gas-fired power demand to rise 22.7% from 2024 levels by 2035. Increasing natural gas production, backed by expanding export capacity, should further strengthen the industry backdrop and support the company’s long-term growth prospects.
To capitalize on these trends, TC Energy plans to expand its rate base through annual capital investments of $6–$7 billion for the remainder of this decade. Backed by these projects, management expects adjusted EBITDA to reach $12.6–$13.1 billion by 2028, implying a 5–7% compound annual growth rate.
Supported by this steady earnings outlook, TC Energy aims to deliver long-term annual dividend growth of 3–5%, reinforcing its appeal to income-focused investors.
Investors’ takeaway
Supported by its solid quarterly performance, TC Energy has delivered an impressive 12-month total shareholder return of 34.7%, outperforming the broader market. Following this strong rally, the company’s valuation has moved higher, with its next-12-month price-to-sales and price-to-earnings multiples at 5.4 times and 22.5 times, respectively.
While the stock may appear relatively expensive at current levels, its contracted and rate-regulated business model, stable cash flow generation, and visible long-term growth prospects support a constructive outlook. For investors with an investment horizon of more than three years, TC Energy could still represent an attractive long-term opportunity.
