TC Energy’s Preferred Shares: A Strategic Addition to the S&P/TSX Index Amid Restructuring

Recent rumors about TC Energy Corporation’s preferred shares (TSX:TRP.PRF) being “dropped” from the S&P/TSX Preferred Share Index have sparked confusion in the market. However, the reality is far more nuanced: instead of an exclusion, TC Energy’s preferred shares were explicitly added to the index in early 2025, a move tied to its corporate restructuring and the evolving dynamics of Canada’s preferred share market. This article dissects the mechanics behind the inclusion, its implications for investors, and how TC Energy’s strategic moves align with broader trends in energy infrastructure financing.

The Spinoff and Index Adjustment: Clarifying the Facts

The confusion likely stems from TC Energy’s October 2024 spinoff of its liquids pipelines business into South Bow Corporation (TSX:SOBO). While South Bow was removed from the S&P/TSX 60 Index post-spinoff—a standard procedural step for newly formed entities—TC Energy itself retained its place in major indices. Crucially, its preferred shares (TRP.PRF) were added to the S&P/TSX Preferred Share Index in Q1 2025. This reflects the index’s responsiveness to corporate actions and liquidity criteria, ensuring it remains representative of Canada’s preferred share universe.

The Preferred Share Restructuring: Fixed vs. Floating Rates

The inclusion of TRP.PRF coincided with significant restructuring within TC Energy’s preferred share portfolio. In late 2024, the company executed conversions between its Series 1 (fixed-rate) and Series 2 (floating-rate) preferred shares:
- 42,200 Series 1 shares were converted to floating-rate Series 2, while
- 3,889,020 Series 2 shares were converted back to fixed-rate Series 1.

This resulted in:
- 18,424,004 outstanding Series 1 shares (symbol: TRP.PR.A), paying a fixed 4.939% annual dividend through 2029.
- 3,575,996 Series 2 shares (TRP.PR.F), offering a floating rate starting at 5.401% for Q1 2025, with quarterly resets.

The dual structure caters to investors seeking either stability or flexibility, a strategic hedge against interest rate volatility.

Dividend Stability and Tax Efficiency

TC Energy’s preferred shares have maintained robust dividend payouts, a key draw for income-focused investors. For example:
- Series 1 (TRP.PR.A): $0.3086875 quarterly dividend (4.939% annualized), tax-efficient as an “eligible dividend” under Canadian tax rules.
- Series 2 (TRP.PR.F): $0.3329282 quarterly dividend (5.401% for Q1), with rates tied to short-term interest rates.

These dividends are underpinned by TC Energy’s strong balance sheet and cash flows from its core natural gas and power-generation assets. The company’s BBB+ credit rating (S&P) and $15.6 billion in annual EBITDA (2023) provide a solid foundation for sustaining payouts.

Market Context and Index Performance

The S&P/TSX Preferred Share Index faced headwinds in Q1 2025, posting a -0.12% return amid U.S. tariff uncertainties and broader economic volatility. However, TC Energy’s preferred shares likely acted as a stabilizing force, given their fixed-rate Series 1 and floating-rate Series 2 structures. The addition of TRP.PRF to the index also broadened its exposure to energy infrastructure, a sector benefiting from North America’s energy transition needs.

Conclusion: A Strategic Move with Long-Term Appeal

TC Energy’s inclusion of TRP.PRF in the S&P/TSX Preferred Share Index underscores its ongoing role as a cornerstone of Canada’s preferred share market. The restructuring of its preferred shares—providing both fixed and floating-rate options—reflects a deliberate strategy to attract diverse investor bases, from conservative income seekers to those seeking inflation-hedging flexibility.

Key takeaways for investors:
1. Stable Cash Flows: TC Energy’s $15.6 billion EBITDA and BBB+ credit rating support its ability to honor dividends.
2. Tax Efficiency: Eligible dividends on Series 1 and 2 reduce Canadian investors’ tax burdens.
3. Structural Flexibility: The five-year conversion window (next up in 2029) allows investors to adapt to evolving rate environments.
4. Index Influence: TRP.PRF’s addition to the index amplifies its liquidity, benefiting both retail and institutional holders.

While the broader preferred share market faces macroeconomic challenges, TC Energy’s preferred shares remain a compelling option for investors prioritizing income and diversification. As the energy infrastructure sector evolves, TC Energy’s focus on core gas assets and disciplined capital management positions its preferred shares as a resilient holding in the years ahead.