When investing in dividend stocks for a passive income, most investors prefer to accumulate a large amount of capital before making a buy. However, while increasing your capital, you may start losing good yield opportunities. So, even if you only have access to a modest sum (like $500), you may consider grabbing one of the top stocks for dividends trading on the TSX right now.
A pipeline giant
TC Energy (TSX:TRP) is one of the largest pipeline companies in Canada, with the bulk of its infrastructure leaning towards and most of its revenues coming from natural gas — the cleaner of the two major fossil fuels. Its natural gas pipeline network spans over 93,300 km, starting from Western Canada and going all the way to the U.S. East Coast. Some of its pipelines cover the full length of the U.S.
This network allows the company to transport about a quarter of the natural gas consumed in the North American continent, which is a significant and, hopefully, lasting edge. Even though the world is slowly moving away from fossil, natural gas might stick around longer than oil, giving it an edge over more oil-heavy competitors.
Its oil/liquid pipeline infrastructure is minimal by comparison, and it’s also growing its power generation infrastructure (4.2-gigawatt output capacity right now), about 75% of which is emissionless.
Dividend stock
There are two reasons why this energy stock is among the top dividend picks in Canada right now — discount and dividend history. It has been growing its payouts for well over two decades (22 years), making it one of the senior aristocrats in the energy sector.
The current payout ratio is not ideal, but it’s an improvement over the past few years. More importantly, its pipeline business model makes its revenues safer and more resilient than typical upstream and downstream energy companies.
The financial consistency allows it to keep rewarding its investors with generous dividends and healthy payout increases. But these are all its characteristic traits, relevant in almost all markets. What makes TC Energy a highly appealing stock right now is the 29% discount it’s trading at.
The discount has increased its yield to a very attractive number of 7.3%. So, even with just $500 in the stock, you would be able to generate about $36.5 a year. The valuation, while not low, is also at an attractive level.
Foolish takeaway
TC Energy is currently among the outliers in both the stock market at large and the energy sector in general, which has risen over 22% this year alone. But this doesn’t indicate a flaw in the stock, and it may also shield it from a correction that the energy sector faces after its magnificent post-pandemic bullish run that still continues (to an extent).
