TC Energy (TSX:TRP) finished 2024 with a gain of close to 28%. Investors who missed the rebound from the previous pullback are wondering if TRP stock is still undervalued and good to buy for a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and total returns.
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TC Energy stock price
TC Energy trades for $67 at the time of writing compared to the 12-month high of around $70. The stock is still below the $74 it reached in 2022 before rate hikes in Canada and the United States triggered a decline in pipeline stocks that sent TRP as low as $45 in 2023.
TC Energy’s growth projects cost billions of dollars and can take years to build. This was precisely the case with the 670 km Coastal GasLink pipeline the company completed in late 2023. The asset will move natural gas from producers in Western Canada to a new liquified natural gas (LNG) facility being built on the coast of British Columbia.
Coastal GasLink received the green light in 2018 with an initial budget of less than $7 billion. Pandemic delays, problems with contractors, and soaring material costs more than doubled the final bill to an estimated $14.5 billion. TC Energy had to take on extra debt just as rising interest rates drove up borrowing costs in 2022 and 2023. This is part of the reason the stock took such a beating.
Bargain hunters started to move back into the stock in late 2023 when the central banks indicated they were done raising rates. That occurred at the same time that Coastal GasLink reached mechanical completion.
Management has done a good job of monetizing non-core assets to reduce debt and shore up the balance sheet. Coastal GasLink and another large project in Mexico are expected to go into commercial operation in 2025. This will boost revenue and cash flow. TC Energy is also pursuing other projects that will see the company invest roughly $6 billion per year over the medium term to drive additional growth.
Revenue from those assets should support ongoing dividend increases. TC Energy’s board hiked the payout in each of the past 24 years. Investors who buy the stock at the current price can get a dividend yield of 4.9%.
Risks
Inflation rose in the United States in the past two months. Bond yields have actually moved higher despite recent cuts to interest rates. The market now expects only two rate cuts in the U.S. in 2025 instead of four. If new tariffs are put in place and inflation surges in the United States next year, the Federal Reserve might be forced to put additional rate cuts on hold or even increase rates again. If that happens pipeline stocks could give back some of the big gains.
The bottom line on TRP stock
A pullback would not be a surprise in the coming months, given the size of the rally last year. That being said, income investors with a buy-and-hold strategy should be comfortable owning TRP stock at this level. The dividend should continue to grow, so any material decline in the share price would be an opportunity to add to the position.
