Warren Buffett: Could Berkshire Hathaway Buy This Top Canadian Dividend Stock?

Warren Buffett makes headlines every time Berkshire Hathaway invests in a new business. The latest big deal could indicate a new trend in the market, and this top Canadian dividend stock deserves to be on your radar.

| More on:

Warren Buffett is a legend in the investing world. As such, the purchases made by his firm Berkshire Hathaway attract a lot of attention.

Announcements of new investments often drive up the share prices of the stocks the company buys.

Takeover deals create interest in other stocks in the same sector, as investors seek out potentially undervalued companies. Additional consolidation might also occur if interest heats up in the industry.

Warren Buffett bets big on natural gas transmission

Berkshire announced a US$10 billion deal in July to buy the natural gas transmission and storage assets of Dominion Energy. The deal includes the assumption of US$6 billion in debt and is the first large acquisition made by the company during the pandemic.

In the spring note to shareholders, Warren Buffett said Berkshire had US$137 billion to spend and was searching for attractive targets.

The big purchase in the energy sector might come as a surprise to the market. Oil and gas producers continue to struggle with weak prices. Energy infrastructure companies that move the hydrocarbons face serious challenges to get major new pipelines built.

Obviously, Warren Buffett sees a strong long-term opportunity for the natural gas transmission sector.

Could TC Energy be a Warren Buffett investment target?

TC Energy (TSX:TRP) (NYSE:TRP) would be the top Canadian company with similar assets. The firm is primarily a natural gas transmission and storage business. It also has oil pipelines and power-generation facilities.

TC Energy’s natural gas transmission network includes 93,300 km of pipelines that cross Canada and run right down through the United States to the Gulf Coast. TC Energy also has a large presence in Mexico.

When you add it all up, TC Energy transports more than a quarter of the natural gas used in North America to heat buildings and generate power. The unique portfolio of assets also positions the company to play a key role in the long-term expansion of the global LNG market.

On the storage side, TC Energy has more than 650 billion cubic feet of natural gas storage capacity.

Despite challenges to get new pipeline approved and completed, TC Energy still has a robust development portfolio. In fact, the secured capital program through the end of 2023 stands at $37 billion.

As the new assets are completed and go into service, TC Energy should see revenue and cash flow grow enough to support a dividend increase of 8-10% in 2021. Dividend hikes of 5-7% per year are expected afterwards.

That’s great guidance in the current economic environment.

TC Energy gets about 95% of its comparable EBITDA from regulated assets or long-term contracts. This means cash flow should be predictable and reliable.

No wonder Warren Buffett likes the gas transmission sector.

TC Energy has a market capitalization of $56 billion, so it would be a big purchase, but it certainly isn’t beyond the reach of Berkshire. A large investment in the company might also be a possibility.

Should you buy TC Energy stock?

TC Energy trades near $60 per share and offers a 5.3% dividend yield. The stock traded above $76 per share earlier this year, so there is decent upside potential.

Would Warren Buffett buy TC Energy stock

At this point, TC energy appears oversold. I expect volatility to continue in the near term, but the downside risk should be limited, and you get paid well to wait for the recovery.

If you have some cash available for a top dividend stock, I would consider adding TC Energy to the portfolio today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Dominion Energy, Inc and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short September 2020 $200 calls on Berkshire Hathaway (B shares). Fool contributor Andrew Walker owns shares of TC Energy.

More on Dividend Stocks

Canadian dollars are printed
Dividend Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Toronto-Dominion Bank (TSX:TD) stock could do well in the year ahead.

Read more »

monthly desk calendar
Dividend Stocks

Monthly Income: Top Dividend Stocks to Buy in November

Here are two of the best monthly dividend stocks in Canada you can buy in November 2024 and hold for…

Read more »

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »

Hourglass and stock price chart
Dividend Stocks

Goeasy Stock: Is It Heading for a 52-Week High?

Goeasy stock has been edging higher, especially after another record-setting earnings report. So are 52-week highs in sight?

Read more »