Why This Large-cap TSX Energy Stock Is A Must-buy Now?

Published on: Feb 29, 2024
Author: Caroline Kong

As one of the largest energy infrastructure companies in North America, TC Energy Corporation (TSX:TRP) has a diversified portfolio of oil and gas pipelines and storage facilities.

At the end of February, the Calgary-based energy infrastructure company had a market capitalization of C$55.7 billion, with shares trading at C$53 on the Toronto Stock Exchange (TSX).

Energy stocks have under-performed over the past year due to falling oil prices, but the energy sector as a whole has posted a 5.5 per cent gain so far this year, compared to a 2.2 per cent gain for the broader TSX. Some market analysts believe that traditional oil and gas companies remain attractive investment opportunities. If you still have some doubts about investing in this large-cap energy stock, here are four reasons why TC Energy stock deserves to be added to your portfolio right now.

Solid Financial Performance

Earnings reports show that the company’s fourth-quarter 2023 profits grew significantly, with adjusted EPS climbing to $1.35 from $1.11 in the same period of 2022, a 21.6% year-over-year increase that beat analysts’ estimates by 22%. The strong fourth-quarter results are more important given that the company’s earnings had declined over the past two quarters, and are seen by analysts as one of the bullish indicators that could drive the stock higher in the near term.

For the full fiscal year 2023, the company’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) rose 28.3% year-on-year to nearly $11 billion. Adjusted EBITDA margin also rose to 69 per cent from 66.1 per cent in 2022. The solid financials demonstrate TC Energy’s strong operational performance and focus on strategic initiatives, making its stock very attractive right now.

Strategic Spinoff

On 27 July 2023, the Board of Directors approved a plan to demerge TC Energy’s Liquid Pipelines business. Management believes that splitting the business and creating two separate investment grade companies will maximize the value of the assets.

This decision follows a two-year strategic review and the specific demerger is expected to be completed in the second half of 2024. The split standalone oil infrastructure business will be named South Bow, while TC Energy will operate as a low-risk gas and energy solutions company.

Dividend Growth Strategy

As a result of the strong operational and financial performance, the Board of Directors of TC Energy has approved a 3.2% increase in the quarterly dividend for the period ending 31 March 2024, which should be the company’s 24th consecutive year of dividend growth.

For example, if you were to buy shares of TC Energy today, the latest share price would be C$53.70 (up 3.75% year-to-date) and the dividend yield would be 7.15%. Assuming you buy 100 shares of the stock, that would generate C$95.99 in dividend income each quarter.

Favourable Growth Outlook

François Poirier, the company’s president and chief executive officer, said that looking ahead to 2024, management’s strategic focus remains on maximizing the value of its assets, delivering TC Energy’s major projects safely, on time and on budget, and further enhancing balance sheet strength and flexibility.

TC Energy plans to limit its annual capital expenditure to between C$6 billion and C$7 billion. Priorities for 2024 are to advance the Southeast Gateway pipeline project and the U.S. Natural Gas Pipeline projects.

The company is also committed to developing high-quality projects within a secure capital programme and expects to commission nearly C$7 billion of assets this year.

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