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TC Energy (TSX:TRP) has indeed experienced a significant uptrend, witnessing a 17% increase in its stock value since early October. This rise prompts investors, particularly those interested in high-yield dividend stocks, to ponder whether TRP remains undervalued and is a suitable option for inclusion in a Tax-Free Savings Account (TFSA) portfolio geared towards generating passive income. In addition to TC Energy, it's worth considering other TSX energy stocks to diversify your TFSA portfolio. These stocks may offer similar potential for income generation and capital appreciation within the energy sector.
Currently trading at around $53.50, TC Energy has rebounded from lows near $45 last year, driven by shifting sentiments around interest rates. Rising interest rates had previously posed challenges for TC Energy due to increased borrowing costs, impacting profitability and cash available for distributions. However, expectations of central bank rate cuts in 2024 are anticipated to provide support for TRP stock.
One significant factor affecting TC Energy's financials was the Coastal GasLink pipeline project, which experienced cost overruns, pushing the final bill to about $14.5 billion. Despite these challenges, TC Energy managed to bolster its financial position by selling interests in American assets, raising $5.3 billion, with further asset sales of $3 billion expected in 2024. Additionally, TC Energy plans to unlock value by spinning off its oil pipelines business this year, alleviating balance sheet concerns.
In terms of earnings, TC Energy reported record operating and financial results in 2023, with comparable earnings per share increasing by 5% to $4.52. Moreover, the company raised its dividend by 3.2% for 2024, marking its 24th consecutive annual dividend increase. Management anticipates sufficient cash flow growth from the solid capital program to support annual dividend increases of at least 3% over the medium term.
With a current dividend yield of 7.2%, TRP stock presents an attractive option for income-seeking investors. While TC Energy is not as inexpensive as it was previously, it remains considerably below its 2022 peak of $74. Management's efforts to reduce debt and strengthen the balance sheet bode well for the company's growth prospects.
Although some volatility can be expected, given the recent rally, TRP stock still appears appealing, offering investors an opportunity to capitalize on passive income generation. Therefore, for investors seeking to deploy cash in a TFSA focused on generating income, TC Energy warrants consideration.
