A Tax-Free Savings Account (TFSA) allows investors to earn tax-free returns, including capital gains and dividend income, on investments made within their available contribution room. As a result, it can be a powerful tool for building long-term wealth through tax-free compounding.
However, investors should exercise caution when investing through a TFSA. Selling investments at a loss permanently reduces investors’ cumulative contribution limit, potentially diminishing the opportunity to maximize tax-free growth over time.
With this in mind, investors should focus on high-quality dividend stocks backed by resilient business models and reliable cash flows. In that context, let’s examine TC Energy (TSX: TRP), including its business outlook, dividend track record, growth prospects, and valuation, to determine whether it deserves a place in a long-term TFSA portfolio.
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TC Energy’s business outlook
TC Energy is a leading energy infrastructure company with a diversified portfolio that includes approximately 93,600 kilometres of natural gas pipelines and power-generating facilities totaling 4.7 gigawatts of capacity. The company generates a substantial percentage of its revenue under long-term, take-or-pay agreements and rate-regulated frameworks, with approximately 98% of its earnings derived from these stable sources. As a result, its financial performance is relatively insulated from market volatility, economic cycles, and commodity price fluctuations.
This resilient business model has enabled TC Energy to deliver a total return of more than 700% over the past two decades, representing an annualized return of roughly 11%. It has also rewarded shareholders with consistent dividend growth, increasing its dividend for 26 consecutive years, and currently offers a forward yield of 3.7%.
TC Energy also delivered solid first-quarter results in May. Its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 14% year over year to $3.1 billion, while adjusted earnings per share increased 4.2% to $0.99. Strong contributions from its Canadian, U.S., and Mexican Natural Gas Pipeline businesses, along with its Power and Energy Solutions segment, drove the improved performance.
Let’s now examine the company’s long-term growth prospects.
TC Energy’s growth prospects
Growing natural gas production across North America continues to increase demand for TC Energy’s critical infrastructure and services, providing an excellent foundation for long-term growth. To capitalize on this opportunity, the company plans to invest $6–$7 billion annually to expand its asset base. At the same time, it is enhancing operating efficiency through commercial initiatives and technological innovation.
Supported by these investments, management projects its adjusted EBITDA to range from $12.6 billion to $13.1 billion in 2028, with the midpoint implying a compound annual growth rate of approximately 5.3% through 2028. Alongside its growth investments, TC Energy remains focused on disciplined capital allocation and execution to strengthen its balance sheet further, targeting a long-term net debt-to-EBITDA ratio of 4.8 times.
Backed by its resilient financial performance, improving balance sheet, and visible growth pipeline, TC Energy also expects to increase its dividend by 3% to 5% annually over the coming years, making the stock an attractive choice for long-term income-focused investors.
Investor takeaway
TC Energy has delivered an impressive 53.6% return over the past 12 months. Following this strong rally, the stock now trades at a premium valuation, with next-12-month (NTM) price-to-sales and price-to-earnings multiples of 6.2 and 25.9, respectively.
While the valuation appears elevated, I believe the premium is warranted given TC Energy’s resilient business model, dependable cash flows, consistent dividend growth, and attractive long-term growth prospects. As a result, the stock remains a compelling addition to a long-term TFSA portfolio despite its higher valuation.
