The TSX battled inflationary pressures in 2023 and won with an 8.12% overall gain. Canadian stocks erased the losses of 2022, but some market analysts say it was a restrained rebound. Given the lower recession risks and possible start of rate cuts, they expect the returns to be far better this year.
Financial and energy stocks underperformed but are the sectors to watch in 2024. Besides these heavyweight sectors, many stocks in other sectors also trade at discounted prices. However, one high-yield dividend stock is a buying opportunity and is ready to dominate the TSX.
Top-of-mind choice
TC Energy (TSX:TRP) is a top-of-mind choice in the oil & gas midstream industry. The $54.5 billion energy infrastructure company derives revenue from diversified, high-quality assets. Dividend growth is also enticement for income investors. This pipeline stock is a Dividend Aristocrat owing to 23 consecutive years of dividend increases.
If you invest today, TRP trades at $52.53 per share (+1.49% year to date) and pays a lucrative 7.12% dividend. However, there’s more to look forward to apart from the higher earnings forecast for 2024. Five primary segments contribute to revenues: the natural gas pipelines in Canada, the U.S., and Mexico, power & energy solutions, and liquids pipelines.
The grand plan
TC Energy’s grand plan is to spin off its liquids pipeline segment and create two investment-grade publicly listed companies instead of one. “The spinoff will unlock the evident value we see from each company’s unique opportunity set. TC Energy will continue to cultivate a highly regulated, low-risk and utility-like portfolio with a balance of income and growth,” said TC Energy chief executive officer (CEO) François Poirier.
Management expects to finalize the spinoff in the second half of 2024 and introduce South Bow Corporation. Poirier added that both companies will pursue their own growth objectives and should deliver superior shareholder value in the next decade and beyond.
Post-transaction
TC Energy will focus on natural gas infrastructure after the spinoff. The company retains the long-term fundamentals of the segment supported by the power & energy solutions business, including nuclear, hydro energy storage and new energy opportunities.
Also, management has committed to proceeding with the $4.5 billion Ontario Pumped Storage Project together with the Saugeen Ojibway Nation. The project will generate 1,000 jobs during construction, and Ontario-based companies will provide 75% of the project’s materials and supplies.
Furthermore, Poirier said TC Energy will be an increasingly utility-weighted business with a stable balance sheet. The company expects comparable earnings before interest, taxes, depreciation, and amortization to grow at a 7% compound annual growth rate (CAGR) through 2026 and 2% to 3% CAGR for South Bow. Both have solid 3% to 5% annual dividend-growth outlooks.
Key takeaways
TC Energy’s appeal as a solid investment for long-term growth will not diminish during the separation and after the spinoff. Post-2024, the sanctioned annual net capital spending is between $6 and $7 billion. About 96% of the business are rate-regulated and supported by long-term contracts.
Domination is indeed on the horizon, as TC Energy’s profile turns low-risk due to the highly regulated, utility-like portfolio. The generous dividend should likewise remain consistent for years to come.
