{"id":11252,"date":"2023-11-08T18:25:02","date_gmt":"2023-11-08T18:25:02","guid":{"rendered":"https:\/\/infundpros.com\/news\/tc-energy-stock-7-4-dividend-yield-this-is-a-fascinating-income-play-nysetrp\/"},"modified":"2023-11-08T18:25:04","modified_gmt":"2023-11-08T18:25:04","slug":"tc-energy-stock-7-4-dividend-yield-this-is-a-fascinating-income-play-nysetrp","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=11252","title":{"rendered":"TC Energy Stock: 7.4% Dividend Yield, This Is A Fascinating Income Play (NYSE:TRP)"},"content":{"rendered":"
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All financial numbers in this article are in Canadian dollars unless noted otherwise.<\/em><\/p>\n

Introduction<\/h2>\n

It’s time to talk about the TC Energy Corporation (NYSE:TRP<\/span>)<\/strong>, one of North America’s largest midstream companies with a 7.4% yield.<\/p>\n

My most recent article on this company was written on April 6, 2023, when I highlighted the company’s impressive dividend track record, a rating downgrade, and plans to grow the business more consistently.<\/p>\n

This is a part of my takeaway back then (emphasis added):<\/p>\n

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TC Energy is a fascinating company and a major part of the North American energy infrastructure. It services major basins, export facilities, and non-fossil fuel energy demand while maintaining a dividend yield of 6.8%. The dividend has been hiked for 23 consecutive years<\/strong>, providing reliable income for its many investors.<\/em><\/p>\n

Unfortunately, due to the company’s substantial investment needs, it has had to seek external funding, resulting in a significant accumulation of debt on its balance sheet in recent years<\/span><\/strong>. Unfortunately, this trend is <\/span>projected to continue in the foreseeable future<\/strong>, and as a consequence, the company’s <\/span>credit rating has been downgraded<\/strong>.<\/span><\/em><\/p>\n<\/blockquote>\n

As the company just released its 3Q23 earnings, it’s time to take another look at this giant, as I’ve started to like its yield. In fact, the company hasn’t been this cheap since before the Great Financial Crisis.<\/p>\n

While a big part of this is due to elevated borrowing costs in a situation of higher borrowing needs, the risk\/reward for income investors has gotten quite good.<\/p>\n

So, using just-released earnings, I’ll use this article to explain why TRP has turned into a more attractive high-yield opportunity in the midstream industry.<\/p>\n

Also, note that TRP does not issue a K-1 form. It’s a “normal” Canadian C-Corp.<\/p>\n

So, let’s get to the details!<\/p>\n

A Strong 3Q23 Performance & Spin-Off<\/h2>\n

After having analyzed more than a dozen midstream companies in the past few months, I can conclude three things.<\/p>\n

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  1. Most midstream companies are now free cash flow positive, allowing them to pay dividends without having to borrow money.<\/li>\n
  2. Despite the economic weakness, pipeline demand is high, and business is booming.<\/li>\n
  3. Companies with elevated leverage are suffering from the impact of high rates on borrowing costs, hurting the bottom line.<\/li>\n<\/ol>\n

    When it comes to TRP, the company is benefiting from very strong demand.<\/p>\n

    During the third quarter, TC Energy delivered a robust performance, leading to a 7% year-over-year increase in comparable EBITDA.<\/p>\n

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    TC Energy Corporation<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

    This performance was primarily driven by higher flow-through costs and increased NGTL rate-based earnings in the Canadian Natural Gas rate-regulated pipelines business, additional assets placed into service in the Mexico Natural Gas Pipelines business, higher long-haul contracted volume, and increased volumes.<\/p>\n

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    TC Energy Corporation<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

    The company has placed around $5 billion in assets into service so far in the year, including a significant portion of the West Path project.<\/p>\n

    It also saw $5.3 billion in cash proceeds, largely due to the sale of a minority equity interest in Columbia Gas and Columbia Gulf, but more on that later in this article.<\/p>\n

    This positions the company to reach its asset sales goal and limit annual net capital expenditures.<\/p>\n

    The company also achieved a significant milestone with the mechanical completion of the Coastal GasLink project ahead of schedule.<\/p>\n

    This is a pivotal step in bringing Canadian natural gas to global markets.<\/p>\n

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    TC Energy Corporation<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

    With that in mind, the company plans to spin off its Liquids pipeline business into a standalone entity named South Bow. The move aims to maximize the commercial potential of this corridor, serving the U.S. Gulf Coast and Midwest.<\/p>\n

    I’m very excited about this deal, as it would create two unique companies, each with a focus on value-adding operations with different risk profiles and growth opportunities.<\/p>\n

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    \"TC<\/span>
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    TC Energy Corporation<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

    The company believes that this separation could add at least 100 basis points to annual EBITDA growth.<\/p>\n

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    \"Image\"<\/span>
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    TC Energy Corporation<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

    In the second half of next year, the separation is expected to be finalized, leading to 3-5% annual dividend growth for TC Energy shareholders and between 2-3% annual dividend growth for South Bow shareholders.<\/p>\n

    As South Bow will focus on infrastructure, it will have a higher yield.<\/p>\n

    Also, given the strong demand picture for fossil fuels and the growing importance of Canada’s WCSB operations, I have to emphasize again how excited I am that the spin-off is progressing nicely.<\/p>\n

    TC Energy’s Dividend & Financial Stability<\/h2>\n

    Thanks to a strong third quarter, TC Energy now anticipates that its 2023 comparable EBITDA will be at the upper end of the 5% to 7% outlook compared to 2022.<\/p>\n

    Comparable earnings per common share are expected to remain generally consistent with 2022, which is due to factors like higher interest expenses.<\/p>\n

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    TC Energy Corporation<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

    With that said, the company has a track record of consistent EBITDA growth.<\/p>\n

    This has supported solid dividend growth.<\/p>\n

    The company aims to continue growing its business in line with its 3% to 5% dividend growth rate, ensuring the sustainability of its dividend through all economic cycles.<\/p>\n