Investing in high-dividend stocks may offer investors the chance to create a stable and recurring income stream for life. However, dividends are not guaranteed and can be revoked anytime, especially if company financials deteriorate.
So, it’s extremely critical to identify companies that thrive across economic cycles and generate stable cash flows in good times and bad. One such blue-chip TSX stock is TC Energy (TSX:TRP), which has returned 11% annually to shareholders since 2000.
With $123 billion in total assets, TC Energy continues to reinvest in growth and has a capital program totalling $32 billion through 2028, which should drive future cash flows higher.
Around 95% of TC Energy’s comparable EBITDA (earnings before interest, tax, depreciation, and amortization) is tied to rate-regulated assets or long-term contracts, making the energy infrastructure company immune to fluctuations in commodity prices.
Its widening cash flows should help TC grow dividends between 3% and 5% annually in the near term, showcasing the resiliency of the business model of the Canadian pipeline giant amid a challenging macro backdrop.
TC Energy currently pays shareholders an annual dividend of $3.72 per share, translating to a dividend yield of 7.2%. These payouts have risen by 6.9% annually in the last 23 years, which is exceptional for a company in a cyclical sector. Let’s see if this TSX dividend giant remains a good buy for income investors today.
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TC Energy has navigated a complex environment in 2023
Capital-intensive companies have trailed the broader markets since the start of 2022 as investors are worried about higher interest rates impacting their profit margins and cash flows. TC Energy ended the third quarter (Q3) with almost $66 billion in balance sheet debt and just $3.3 billion in cash.
However, TC Energy closed the sale of a 40% minority interest in Columbia Gas and Columbia Gulf for cash proceeds of $5.3 billion, a portion of which will be used to lower its debt levels.
Further, TC Energy placed $5 billion of projects into service in the first nine months, allowing it to end 2023 with a year-over-year EBITDA growth of almost 7%.
Brace for a spinoff in 2024
Earlier this year, TC Energy disclosed its intention to create two premium energy infrastructure companies via a spin-off, enabling it to unlock incremental value for shareholders. These well-capitalized, investment-grade businesses are expected to maintain the existing dividend of the combined entity.
TC Energy will operate businesses such as natural gas pipelines, storage, and power. Its unified natural gas business offers TC Energy a utility-like profile and a wide competitive moat as it delivers 25% of natural gas demand in North America.
TC Energy expects to grow EBITDA in this business by 7% annually to $11.2 billion in 2026, up from $8.5 billion in 2022.
The liquids pipeline and storage company will be called South Bow. Its low-decline WCSB (Western Canadian Sedimentary Basin) supply connects 16% of WCSB exports to the largest refining and export markets in North America. TC Energy expects South Bow to expand EBITDA between 2% and 3% annually through 2026.
The spinoff will be completed in the second half of 2024, subject to regulatory approvals.
The Foolish takeaway
Investors can choose to invest in either of the two entities. But for dividend-growth investors, it makes sense to have a larger position in TC Energy, which is projected to grow cash flows and dividends at a faster pace.
