TC Energy is a leading energy infrastructure company in North America. The company moves more than 25% of natural gas consumed daily across North America. It changed its name to TC Energy, from TransCanada, to better reflect the scope of its operations across North America with critical assets in Canada, the U.S., and Mexico. It is one of North America’s largest natural gas pipeline networks with premier liquids pipeline system and one of the largest private sector power generators in Canada.
TC Energy has a strong portfolio of diversified assets, storage facilities, and power generation plants. The company operates a safe and stable network of 57,500 miles of natural gas and 3,000 miles of crude oil pipelines. Its pipelines connect major basins to key markets across North America. The company also operates 6,600 megawatts of wind and nuclear power facilities enough to power more than six million homes. By generation type, TC Energy’s assets can be divided into nuclear (51%), natural gas (43%) and wind (6%). TC Energy runs five operating businesses in three core geographies – Canadian Natural Gas Pipelines (28% of 2019 EBITDA), US Natural Gas Pipelines (35%), Mexico Natural Gas Pipelines (7%), Liquids Pipelines (23%) and Power & Storage (9%), across the USA (52% of EBITDA), Canada (40%) and Mexico (8%). The company’s asset footprint provides multiple platforms for growth.Investment Data
- Opportunity Score: 74
- Ticker: TSE:TRP
- Sector: Energy
- Industry: Oil & Gas - Midstream
- Market Cap: 38.60B
- P/E: 13.54
- Dividend Yield: 5.67
- Dividend Payout Ratio: 75.88
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
Revenue Growth & Market Exposure
With more than 65 years of service, TC Energy has earned itself the reputation of one of North America’s largest natural gas pipeline operators. Its assets have grown to $100 billion from $25 billion, since 2000. It has been transforming itself from a predominantly pipeline business into an energy infrastructure company. The company has diversified assets with a strong base in advantaged basins and unparalleled connectivity to key markets.
TC Energy derives about 93% of revenues from long-term take-or-pay contracts. More than 60% of its earnings are derived from regulated assets, followed by ~30% from contracted assets and balance ~10% earnings have a volumetric and commodities exposure. The business is highly diversified by assets, customers, and geographies. It is strategically developing its pipelines connecting major supply basins with growing power generation, industrial and other key markets. TC Energy’s assets are highly strategic in nature with access to North America’s two most prolific natural gas supply basins. Its Keystone Pipeline transports nearly one-fifth of Western Canada’s crude oil exports to the U.S. Midwest and Gulf Coast. TC Energy continued to put new long-term contracted and rate-regulated assets into service last year.
Given TC Energy’s impeccable record of project completions in time, the company has been able to secure new ones easily, which has led to a strong expansion project pipeline for future growth. The company is trusted nationwide for safe and reliable delivery of energy to millions of people every day. As one of the leading operators of natural gas assets, TC Energy is in a good position to benefit from natural gas demand growth outlook in North America.
TC Energy has been consistently growing its dividend each year, over the last two decades, increasing it to $3.24 from just $0.80 per share back in 2000. The company’s last dividend raise was 8% with a dividend yield of over 6%. This dividend aristocrat has compounded its dividend growth at 9.9% per annum over the last three years. TC energy’s current payout ratio of 75% represents approximately 40% of funds generated from operations, leaving significant internally generated cash flow for investment in core businesses. TC Energy has maintained an impressive average annual shareholder return of 14% since 2000 and has a record of producing double‐digit average annual total shareholder return in the last two decades.
TC Energy aims at growing its dividend at an average annual rate of 8%-10% through 2021, driven by a strong project pipeline and growth in its diverse business segments. The company’s portfolio underpinned by long‐term contracts with solid counter-parties, grants enough cash flow visibility. Its EBITDA is poised to deliver 8% CAGR through 2022E.
As a leading energy player in North America, the company stands a good chance to benefit from significant power generation opportunities in the nation. A large portfolio of energy assets, strong future growth projects, and an extensive geographic footprint form a deep moat around TC Energy’s business. The company continued to make good progress on several portfolio management initiatives and asset sales that will allow it to redeploy cash into its $32 billion secured capital program, thereby reducing the need for external funding.
TC Energy’s diversified portfolio of regulated and long-term contracted assets continues to support strong financial results. Its continued asset sales further strengthened its balance sheet. The company’s strong financial position will be further bolstered by the completion of pending portfolio management and project financing expected in the first half of 2020. TC Energy is also focusing on turning its remaining merchant revenues into contracted annuity streams as well as increasing regulatory certainty through long-term settlements with its customers. This shall further enhance multi‐decade cash flow visibility.
TC Energy entered into an agreement to sell a 65% equity interest in Coastal GasLink which, when combined with the establishment of a secured construction credit facility is expected to substantially satisfy its funding requirements through in-service. A project pipeline worth more than $20 billion that are in advanced stages of development along with its $30 billion secured capital program (through 2023), is expected to support annual dividend growth of 8%-10% in 2021 and 5%-7% thereafter.
Enbridge, Keyera Corp, Pembina Pipeline, Inter Pipeline Ltd are TC Energy’s leading competitors. Enbridge is Canada’s largest natural gas distribution provider while Pembina Pipeline is a leading midstream and transportation service provider in North America. Inter Pipeline is an integrated energy infrastructure company in Canada, and Keyera’s integrated business, strategic locations, and large scale differentiate it from peers. TC Energy’s well-distributed footprint of natural gas pipelines, low‐risk business model and diversified asset base grants it a strong competitive edge over peers.
|ENB||Enbridge||Energy||Oil & Gas - Midstream||69||39.51||57.03||15.05||15.05||2.63||8.20||123.19||4||3.24||21.20||YES||YES||YES||NO||1|
|TRP||Transcanada Pipelines||Energy||Oil & Gas - Midstream||74||57.19||38.60||13.54||13.54||4.27||5.67||75.88||4||3.24||12.39||YES||YES||NO||NO||1|
|PPL||Pembina Pipeline||Energy||Oil & Gas - Midstream||65||23.23||12.53||8.78||8.78||2.65||10.85||95.09||12||2.52||15.01||YES||NO||NO||NO||1|
|ALA||AltaGas||Energy||Oil & Gas - Midstream||50||11.55||3.27||4.24||4.24||2.77||8.31||34.66||12||0.96||8.31||NO||NO||NO||NO||1|
|IPL||Inter Pipeline Ltd||Energy||Oil & Gas - Midstream||62||7.64||3.26||6.00||6.00||1.30||6.28||36.92||12||0.48||10.58||YES||NO||NO||NO||1|
|KEY||Keyera Corp||Energy||Oil & Gas - Midstream||63||11.52||2.56||5.67||5.67||2.07||16.67||92.75||12||1.92||23.60||YES||NO||NO||NO||1|
|GEI||Gibson Energy Inc.||Energy||Oil & Gas - Midstream||50||14.50||2.11||12.14||12.14||1.19||9.38||114.29||4||1.36||10.41||NO||NO||NO||NO||1|
Given the current situation of the Canadian oil industry, energy infrastructure is a good place to be right now as they can maintain revenues even in a slowdown. TC Energy is well-positioned to deliver superior long‐term shareholder returns with a low‐risk business model, diverse asset footprint providing multiple platforms for growth, and financial strength and flexibility. Ownership of three complementary energy infrastructure businesses across the three core geographies in North America imparts the much-needed diversification to the energy business. Regulated businesses and long‐term contracts further ensure safe and secure cash flows. TC Energy continued to increase its dividend despite several challenges like lower volumes and earnings on a few of its pipeline systems. The company has a clear dividend growth plan supported by strong assets and continued expected growth across each of its business lines. Its dividend growth is supported by expected growth in earnings and cash flow.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.