TC Energy (NYSE: TRP), formerly TransCanada, recently reported excellent second-quarter results. The Canadian pipeline giant not only grew its cash flow at a healthy pace but also continued advancing its industry-leading backlog of expansion projects. That visible growth should give it the fuel to continue increasing its high-yield dividend.
That was the central theme of CEO Russ Girling's message to investors on the accompanying conference call. Here's what's driving his view that the company can continue growing its dividend, which should give it the fuel to keep up its market-beating ways.
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Our strategy is paying dividends
Girling started the call by saying:
During the second quarter, our 100 billion-Canadian-dollar ($75 billion) portfolio of high-quality long-life energy infrastructure assets continued to profit from strong supply and demand fundamentals in the core geographies in which we serve. We continue to realize the growth expected from our industry-leading capital expansion program as we place new long-term contracted and rate-regulated assets into service. Evidence of this can be seen in our... comparable funds generated from operations of approximately $1.7 billion or 14% higher than last year.
As Girling notes, TC Energy's investments to expand its portfolio are delivering a meaningful boost to its bottom line. Its cash flow rose at a double-digit pace during the second quarter, which gave it the funds to increase its dividend by 8.7% this year.
We have plenty of fuel to keep growing
TC Energy's CEO expects those trends to continue:
Today, we are advancing $32 billion ($24 billion) of secured capital projects with approximately $7 billion ($5.3 billion) of those projects expected to be completed by the end of this year. We also continued to advance over $20 billion ($15 billion) projects under development, including Keystone XL and the refurbishment of another five reactors of Bruce Power as part of the long-term life extension program there.
As Girling notes, TC Energy has a large backlog of expansion projects under construction and more in development. That provides the energy infrastructure company with significant visibility into its growth potential.
In looking forward, Girling stated:
We expect our strong operating financial performance to continue and therefore, 2019 comparable earnings per share are expected to be higher than the record results we produced in 2018. At the same time, our overall financial position remains solid and we believe we are well-positioned to achieve our targeted credit metrics in 2019. ... Based on continued strong performance of our base businesses combined with our growth plans, we continue to expect to grow our dividend at an average annual rate of 8% to 10% through 2021. And as has always been our practice, the growth in dividends is expected to be supported by sustainable growth in earnings and cash flow per share and strong distributable cash flow coverage ratios.
As the CEO details, TC Energy remains confident that its backlog of expansion projects will provide it with the fuel to increase its dividend at a fast pace through 2021. Furthermore, with the company also taking steps to shore up its balance sheet, its financial profile will improve even as it grows its dividend. That means the company's payout will be higher not only in the future but also on an even more sustainable long-term footing.
An excellent stock for income investors
TC Energy has been a terrific stock over the years. Since 2000, it has generated a 14% total annual return, fueled in large part by its ability to increase its high-yielding dividend by a more than 7% compound annual rate over that timeframe.
As the company's CEO made clear on the second-quarter call, that growth should continue. Not only does the energy infrastructure giant have the fuel to increase its 4.7%-yielding payout at an 8% to 10% rate through 2021, but it also has plenty of opportunities in the pipeline to continue growing. That rising income stream makes it an ideal stock for dividend investors to consider buying and holding for the long haul.
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