Canadian investors are finally getting a chance to buy some top dividend stocks at discounted prices for a self-directed Tax-Free Savings Account (TFSA) focused on passive income and long-term capital growth.
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TC Energy
TC Energy (TSX: TRP) trades for close to $85 per share at the time of writing, compared to the 12-month high around $100.
The company is a major player in the North American energy infrastructure sector with roughly 94,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity in Canada, the United States, and Mexico. A full 30% of the natural gas used in the three countries moves through TC Energy’s systems. The company also has power generation facilities. TC Energy predicts demand for North American natural gas will grow by more than 50 billion cubic feet per day (Bcf/d) from 2025 to 2035.
International buyers are lining up to secure reliable long-term supplies of liquefied natural gas (LNG) exports as a result of disruptions that have occurred due to the wars in Ukraine and the Middle East. TC Energy’s new Coastal GasLink pipeline already carries natural gas from Canadian producers to the new LNG Canada export facility on the coast of British Columbia. Plans are in the works to double the capacity of the pipeline. As Canada ramps up its program to become an energy superpower, more natural gas export capacity is likely on the way. TC Energy could potentially be involved in the construction of a new natural gas pipeline that would carry natural gas to Churchill, Manitoba where it could be shipped to Europe from Hudson Bay.
At home, a boom in the construction of gas-fired power generation facilities is expected as electricity demand from new AI data centres soars. TC Energy’s extensive natural gas infrastructure in Canada, the United States, and Mexico will enable it to supply many of these sites.
TC Energy’s current capital program is trending around $6 billion per year. The addition of the new assets should drive steady growth in cash flow to support ongoing dividend increases. TC Energy raised the dividend in each of the past 26 years. Investors who buy TRP stock at the current price can get a dividend yield of 4.1%.
Risks
The pullback in the share price in the past few months is largely due to rising yields in bond markets as investors are becoming concerned that high oil prices will push up inflation and force the U.S. Federal Reserve and the Bank of Canada to raise interest rates. The last time this happened, in 2022 and 2023, TC Energy’s share price dropped from $74 to $45. TC Energy uses debt to fund part of the construction of its major capital projects, which can cost billions of dollars and often take years to complete. Coastal GasLink, for example, had a construction timeline of nearly five years and came in at a cost of roughly $14.5 billion.
Rising interest rates drive up borrowing costs. This can cut into profits while reducing cash that is available for debt reduction or dividend growth. If funding becomes too expensive, companies might decide to delay or cancel some growth projects.
The bottom line
TC Energy could fall further in the near term, but the dividend yield is already attractive and more dividend increases should be on the way. Additional weakness would be viewed as an opportunity to add to a position in a buy-and-hold dividend portfolio.
If you have some cash to put to work, this stock deserves to be on your radar.
