Shares of TC Energy Corporation (NYSE:TRP)(TSE:TRP) closed about 6.8% lower on November 29. A significant increase in its Coastal GasLink Project costs and fear of a negative impact on the company’s dividend and deleveraging target led investors to sell TRP stock. While higher costs will pressure its near-term margins, the payouts of this energy infrastructure company are secured by its regulated and contracted assets that remain relatively immune to the macro headwinds.
TRP’s Management Reiterates Guidance
TC Energy announced that its Coastal GasLink Project is witnessing significant cost pressure due to various factors, including higher labor costs and shortages of skilled labor. Moreover, contractor underperformance and disputes, drought conditions, and challenges related to erosion and sediment control led to a material increase in project costs and the company’s funding requirements.
Importantly, TRP is taking measures to mitigate costs. Management doesn’t expect any impact of elevated costs on the sustainability of its dividend growth rate or ability to meet the deleveraging target.
TRP reiterated its guidance, predicting 3-5% annual dividend growth in the future. Furthermore, it reaffirmed its long-term adjusted EBITDA growth outlook. TRP’s adjusted EBITDA is projected to increase at a CAGR of 6% through 2026.
Is TC Energy Stock a Buy or Sell?
TC Energy stock carries a Moderate Buy consensus rating based on four Buy and five Hold recommendations. Meanwhile, analysts’ average price target of $49.28 implies 9.2% upside potential.
TRP stock scores a seven on TipRanks’ Smart Scoring system, implying a Neutral outlook. However, our data shows insiders picked up TRP stock worth $1.7M last quarter.
Bottom Line
The significant cost increase will likely impact its financials in the short term. Nevertheless, about 95% of TC Energy’s adjusted EBITDA is backed by long-term take-or-pay contracts and rate regulations. This provides protection against higher interest rates and rising inflation. Also, about 85% of its long-term debt is fixed-rate and has a weighted average maturity of 20 years, insulating it from increasing interest rates.
TC Energy’s solid history of consistent dividend payment and growth (increased dividend for 22 years), growing adjusted EBITDA, and a decent future dividend hike make it an attractive investment. TRP stock also offers a lucrative dividend yield of 5.7% at current price levels.
