TC Energy (TSX: TRP) soared over the past three years after going through an extended rough patch. Recently, however, the stock has given back some of the gains.
Investors who missed the big rally are wondering if TRP is now oversold again 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 $87 per share at the time of writing, compared to $100 earlier this year. The stock is still up from the $45 it fetched in 2023 after falling from $74 the previous year.
Investors might be wondering if a replay of the 2022-2023 downturn is underway. The last major pullback occurred when the U.S. Federal Reserve and the Bank of Canada aggressively raised interest rates to get inflation under control.
TC Energy undertakes development projects that cost billions of dollars to build and sometimes require years to complete. Debt is used to fund a big chunk of the construction of the assets, so a jump in debt expenses can cause difficulties. Variable-rate debt gets hit immediately when rates go up, while bonds previously issued at lower interest rates might have to be replaced at much higher borrowing costs when they mature.
The timing of the rate hikes in 2022 and 2023 was particularly bad for TC Energy, as the company was forced to borrow extra funds to get its 670km Coastal GasLink pipeline completed. Delays and soaring construction costs more than doubled the budget to $14.5 billion. This is largely why the stock took such a big hit.
In order to turn things around, management monetized non-core assets to pay down the debt load. This occurred as the central banks also reduced interest rates in 2024 and 2025. TC Energy also completed two major pipeline projects, including Coastal GasLink, that are now in commercial operation.
With the balance sheet cleaned up and growth opportunities increasing in both Canada and the United States, investors have piled back into TRP over the past two years.
Risks
New concerns about rate hikes are causing the recent weakness in the stock. Sticky inflation, driven by high oil prices, could force the central banks to raise interest rates again in the coming 12 months. Yields on government bonds are at their highest levels of the year, signaling expectations of rate hikes, among other concerns. Rate increases are likely on the way, but they probably won’t be as big or occur as quickly as they did in 2022 and 2023. As such, the potential impact on TC Energy shouldn’t be as severe.
Upside
TC Energy’s current capital program is running at roughly $6 billion per year. The company has projects on the go in Canada and the United States, in both the natural gas transmission and the power generation businesses. As the new assets go into service, the boost to cash flow should support ongoing dividend increases. TC Energy raised the dividend in each of the past 26 years. At the current share price, investors can get a 4% dividend yield.
Longer term, the outlook should be positive for the company.
Canada is focused on becoming an energy superpower, with a strong emphasis on increasing its ability to export natural gas to international buyers in Europe and Asia. TC Energy is already exploring an expansion of its Coastal GasLink pipeline that carries natural gas from producers to the new LNG Canada export facility on the coast of British Columbia.
Plans to ship LNG from Hudson Bay are also in the works and would require a new natural gas pipeline to Churchill, Manitoba. TC Energy is in discussions with government stakeholders regarding the project.
The bottom line
Near-term volatility is expected, and TRP could see further downside, but the 4% yield pays you well to ride it out, and additional weakness would be an opportunity to boost the position. If you have some cash to put to work, this stock deserves to be on your radar.
