TC Energy: Get Paid 6.4% To Own Low-Risk Mission-Critical Pipelines

Core Viewpoint - The midstream sector has become an attractive investment opportunity post-pandemic, with companies like TC Energy positioned to benefit from stable, volume-based revenues and rising natural gas demand [2][22][23]. Industry Overview - Midstream companies own pipelines and related assets, providing income with low exposure to oil and gas price fluctuations, as they earn based on volumes transported [2][22]. - The midstream sector has shown significant recovery, with the Alerian MLP ETF (AMLP) returning 72% over the past three years, outperforming the S&P 500 [2][3]. TC Energy Corporation Highlights - TC Energy has returned 18% since being identified as a compelling investment, outperforming the S&P 500 by approximately 12 percentage points [4]. - The company is strategically positioned with infrastructure across the U.S., Canada, and Mexico, allowing it to capitalize on North American natural gas demand, projected to grow by nearly 40 billion cubic feet per day by 2035 [5][6][8]. - TC Energy plans to place approximately $7 billion in new assets into service in 2024 and an additional $9 billion in 2025 [8][10]. Financial Performance - In Q2 2024, TC Energy's comparable EBITDA rose by 9%, driven by growth in its Canadian, U.S., and Mexican natural gas pipelines [16]. - The company aims to reduce net debt to 4.75x EBITDA and grow comparable EBITDA to at least $11.2 billion [17]. - A dividend of $0.96 per common share was declared for Q3 2024, reflecting a 6.4% annualized yield, with a history of 24 consecutive years of dividend growth [18][19]. Strategic Initiatives - TC Energy is focusing on core operations through asset divestitures, totaling $2.6 billion, to strengthen its balance sheet [10]. - The company is progressing with the South Bow spin-off, expected to be completed in early Q4 2024, which will refocus TC Energy on natural gas [11][12][13]. - A five-year settlement agreement with NGTL customers is anticipated to contribute an additional $150 million to $200 million in annual EBITDA [14][15]. Valuation and Outlook - TC Energy's valuation remains attractive, with expected annual operating cash flow growth of 5-8% through at least 2026 [20]. - The company is projected to achieve an annual total return outlook of 11-13%, including dividends [21].