The Canadian equity markets have made a bright start this month, with the S&P/TSX Composite Index rising by 1.6%. Earlier this month, the Labor Department announced that the United States payroll increased by 236,000 in March, which was below analysts’ expectation of 239,000. Amid the signs of the job market cooling, investors hope the Federal Reserve could adopt liberal monetary policies. So, the improvement in investors’ sentiments appears to have driven the equity markets higher.
However, geopolitical tensions and higher interest rates are causes of concern. So, I expect the equity markets to remain volatile for the rest of this year. In this volatile outlook, investing in high-yield dividend stocks is prudent, as one can earn a stable passive income, irrespective of the market movement.
Meanwhile, I believe TC Energy (TSX:TRP) is an ideal buy for income-seeking investors, given its solid track record of raising dividends, high yield, and attractive valuation. Meanwhile, the company posted a healthy 2022 performance in February. Now, let’s look at its 2022 performance and growth prospects.
TC Energy’s 2022 performance and growth prospects
Last year, TC Energy’s asset utilization rate rose amid geopolitical tensions and increasing energy demand. It posted record deliveries in Canada and the United States natural gas systems during that period. Supported by solid execution, the company’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose by 5.7% to $9.9 billion. The company generated $6.4 billion of cash from its operations.
Despite the challenging macro factors, the company’s management hopes to maintain its upward momentum this year. Supported by its solid execution, the company has increased its market share in the United States LNG (liquefied natural gas) feed gas from 25% to 30% and is on track to raise its share to 35% by 2025.
After putting around $5.8 billion of projects into service last year, TC Energy expects to put around $6 billion of projects into service this year. It has committed to making a capital expenditure of $11.5-$12 billion this year, which could strengthen its asset base. Amid these growth prospects, the company expects its adjusted EBITDA to grow by 5-7% this year.
TC Energy has adopted a $34 billion secured capital program, which could grow its adjusted EBITDA at a CAGR of 6% through 2026. So, the company’s long-term growth prospects look healthy.
Dividend and valuation
With regulated assets and long-term contracts generating 95% of its adjusted EBITDA, TC Energy’s cash flows are stable and predictable. Supported by solid cash flows, the company has been raising its dividends uninterrupted since 2000. Currently, it pays a quarterly dividend of $0.93/share, with its yield for the next 12 months at 6.7%. Additionally, amid its healthy growth prospects, the company hopes to raise its dividend at a CAGR of 3-5% over the next few years.
However, TC Energy has been under pressure over the last few months. The company witnessed one of the worst spillages in its history at its Keystone Pipeline System in December. Meanwhile, the company could incur expenses of around US$480 million to clean it up. These increased expenses and rising interest rates have led to a selloff, with the company losing over 25% of its stock value compared to its 52-week high. Amid the steep pullback, the company’s NTM (next 12-month) price-to-earnings multiple stands at 12.8.
Investors’ takeaway
Despite the near-term volatility, TC Energy would be an excellent addition to your dividend portfolio amid its stable cash flows, healthy growth prospects, attractive valuation, and high dividend yield.
