The pullback in the share prices of several top TSX dividend stocks over the past two years is giving retirees and other investors seeking high-yield passive income a chance to buy great dividend-growth stocks at discounted prices for a self-directed Tax-Free Savings Account (TFSA).
TC Energy
TC Energy (TSX:TRP) had a rough ride in the second half of 2022 and through much of 2023. The stock fell from $74 in June 2022 to as low as $44 last year. Bargain hunters started buying in the fourth quarter (Q4), and TRP stock was actually as high as $55 in March 2024. At the time of writing, the latest dip has pulled the stock below $52.
The decline in the share price is largely due to higher interest rates in Canada and the United States. Soaring inflation forced the Bank of Canada and the U.S. Federal Reserve to raise interest rates aggressively to cool down the hot post-pandemic economy and get the labour market back into balance. TC Energy has a lot of debt, so higher borrowing costs can hurt profits and cut into cash positions. The company borrows money as part of its financing strategy to fund growth projects.
Pipelines and other energy infrastructure developments often cost billions of dollars and can take years to complete before they start generating revenue. This was the case with TC Energy’s 670 km Coastal GasLink pipeline, which reached mechanical completion last year at an estimated final cost of about $14.5 billion, more than double the original budget.
Opportunity
Economists broadly expect the central banks to start cutting interest rates in the second half of 2024 and continue to lower rates through 2025 to avoid pushing the economy into a recession. Once that process begins, TRP stock could pick up a new tailwind.
On the operational side, management sold interests in some American assets in 2023 to raise $5.3 billion to shore up the balance sheet. Additional asset sales of $3 billion are anticipated in 2024, and the company is working towards a spinoff of its oil pipeline business to unlock more value. These efforts will help set the company up to pursue the rest of the capital program, which is expected to average $6 billion to $7 billion per year starting in 2025.
Dividends
TC Energy actually delivered solid financial results in 2023 and the board raised the dividend by more than 3% for 2024. Investors who buy the stock at the current level can get a 7.4% dividend yield. TC Energy has increased the payout for 24 consecutive years and ongoing hikes in the 3% range are likely over the medium term as new assets go into service to drive cash flow growth.
Should you buy now?
Volatility is expected to continue until the central banks start cutting interest rates. However, TC Energy already looks cheap, and you get paid a good yield to ride out additional turbulence. If you have some cash to put to work in a portfolio targeting passive income, this stock deserves to be on your radar.
