TC Energy (TSX: ENB) is down 15% from the 12-month high. Investors who missed the big rally in the stock over the past two years 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 dividend income and long-term capital gains.
Source: Getty Images
TC Energy share price
TC Energy trades near $85 per share at the time of writing, compared to $100 just a few months ago. The drop gives income investors a chance to pick up a dividend yield that is now above 4%.
The decline in the stock price is largely due to concerns that inflation will rise in the coming year, forcing the central banks in Canada and the United States to raise interest rates. Rising borrowing costs are negative for pipeline companies, like TC Energy, that borrow to help fund their capital projects, which often cost billions of dollars and take years to complete before they start to generate revenue.
A barrel of oil recently topped US$100 again amid ongoing restrictions on shipments in the Middle East, with little indication that the situation will improve in the near term. The longer that oil prices remain high, the more likely it is that inflation will spread across the broader economy.
The European Central Bank just raised its interest rate. Markets are betting that the central banks in the United States and Canada, among others, will follow suit.
Upside
TC Energy is riding a wave of rising demand for natural gas in both domestic and international markets. In North America, the surge in construction of new gas-fired power generation facilities bodes well for TC Energy. The company operates more than 90,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity in Canada, the United States, and Mexico. TC Energy already moves about 30% of the natural gas used in the North American market, and its infrastructure is close to key regions where the new power facilities are being built to provide electricity to new data centres.
On the export side, TC Energy’s new Coastal GasLink pipeline is moving natural gas from Canadian producers to the new LNG Canada export facility on the coast of British Columbia. Plans to double the capacity of Coastal GasLink are in the works.
TC Energy would also be a good potential candidate to build a new pipeline that would connect producers to Churchill, Manitoba where shipments of liquified natural gas (LNG) to Europe could occur via Hudson Bay from a new LNG export terminal, if one gets approved and built.
In the meantime, TC Energy’s current capital program is running at an annual pace of $5 billion to $6 billion. This should drive enough growth in cash flow to support ongoing dividend increases. TC Energy raised the dividend in each of the past 26 years.
The bottom line
Near-term volatility should be expected, but TC Energy already looks attractive at the current price and pays a good dividend that should continue to grow. If you have some cash to put to work in an income portfolio, this stock deserves to be on your radar.
