TC Energy Maintains Dividend Amid Stable Performance and Strategic Growth

TC Energy (TSX: TRP) (NYSE: TRP) has reaffirmed its commitment to shareholders with a quarterly dividend of $0.85 per common share, marking an annualized yield of 5.15% as of April 2025. While this represents a reduction from the 2024 peak of $0.96, the decision reflects a balance between sustaining returns and navigating evolving operational and financial priorities. Below, we analyze the implications of this dividend declaration, alongside TC Energy’s first-quarter 2025 financial results and strategic initiatives.

Ask Aime: "TC Energy's dividend cut ties to what new strategy?"

Dividend Context and Financial Health

The $0.85 dividend, declared in Q1 2025, follows a $0.8225 payout in Q4 2024—a strategic recalibration after years of steady increases. While the dividend yield remains robust compared to the Canadian energy sector’s average of 5.0%, the payout ratio metrics offer mixed signals:
- Net Income Payout Ratio: A healthy 88.29%, suggesting dividends are well-covered by earnings.
- Cash Payout Ratio: A concerning 264.1%, indicating reliance on non-cash items or external financing to meet obligations.

This dichotomy underscores TC Energy’s reliance on regulated and long-term contracted assets (97% of EBITDA), which provide stability but may limit cash generation in volatile markets.

Q1 2025 Financial Results: Resilience Through Diversification

TC Energy’s Q1 2025 earnings report highlighted $2.7 billion in Comparable EBITDA, flat year-over-year but consistent with its low-risk business model. Key operational wins included:
- Record natural gas deliveries across North America:
- Canadian pipelines hit 17.8 Bcf/day (NGTL System).
- U.S. GTN pipeline recorded 3.2 Bcf/day, while Mexico’s system reached 4.1 Bcf/day.
- Power segment resilience: Bruce Power’s 87% availability (despite Unit 5 maintenance) and cogeneration plant efficiency at 98.6%.

Ask Aime: What impact will the $0.85 quarterly dividend have on TC Energy's share price and market perception?

The company also reaffirmed its 2025 outlook, projecting Comparable EBITDA of $10.7–$10.9 billion and capital expenditures of $6.1–$6.6 billion, signaling confidence in its project pipeline.

Strategic Projects: A Pipeline of Growth

TC Energy’s future hinges on executing high-return, low-risk projects:
1. Southeast Gateway Pipeline (Mexico):
- A $1.5 billion project completed 13% under budget, now awaiting final regulatory approval.
- 100% contracted to serve Mexico’s growing gas-fired power plants, supporting energy transition goals.
2. Northwoods Project (U.S. Midwest):
- A $0.9 billion expansion of the ANR system, targeting 0.4 Bcf/day capacity for data centers and industrial growth.
- Expected in-service by late 2029 with a 5–7x build multiple, ensuring strong returns.
3. Bruce Power Unit 5 MCR:
- A $1.1 billion nuclear refurbishment to extend operational life until 2064, underpinning long-term power supply reliability.

These projects align with TC Energy’s focus on contracted, rate-regulated assets, which now account for 97% of EBITDA—a critical shield against commodity price volatility.

Risks and Considerations

• Regulatory Delays: Projects like Southeast Gateway depend on timely approvals (e.g., Mexico’s CNE by mid-2025).
• Dividend Sustainability: The cash payout ratio remains a red flag, though the company aims to reduce leverage while maintaining 3–5% annual dividend growth.
• Earnings Pressure: Net income dipped to $0.94 per share in Q1 2025, down from $0.95 in 2024, due to reduced power segment contributions.

Conclusion: A Dividend Cut Worth the Trade-Off?

TC Energy’s $0.85 dividend reflects a disciplined approach to capital allocation, prioritizing long-term value over short-term payouts. With $8.5 billion of projects expected to enter service in 2025—including Southeast Gateway—and a 97% EBITDA stability buffer, the company is positioned to weather near-term challenges.

Investors seeking income should note the 5.15% yield and TC Energy’s 15-year dividend growth streak, despite the recent cut. Meanwhile, the $4 billion in new projects sanctioned since late 2024 (targeting coal-to-gas conversions and data center demand) signal growth catalysts for 2026 and beyond.

Final Take: TC Energy’s dividend reduction is a calculated move to align with its capital-light, high-return strategy. While the yield remains attractive and operational execution strong, investors must weigh the risks of elevated cash payout ratios against the company’s proven ability to deliver on projects. For income-focused investors with a 3–5 year horizon, TC Energy’s mix of stability and growth retains its appeal.

Disclosure: This analysis is for informational purposes only and does not constitute financial advice.