Investing in dividend-growth stocks is a cost-effective method to initiate a passive income stream. It is essential to choose dividend stocks with stable cash flows and sustainable payout ratios to mitigate the risk of potential dividend suspensions in case of deteriorating company financials.
One such dividend stock on the TSX is TC Energy (TSX:TRP), a well-established energy infrastructure company with a market capitalization of $65 billion. TC Energy operates a network of natural gas pipelines, storage facilities, liquid pipeline systems, and power generation facilities. The company has demonstrated consistent growth, increasing its asset base from $25 billion to over $100 billion since 2000.
TC Energy has a history of increasing its annual dividend per share, with a compound annual growth rate of 6.8%. The company anticipates its capital expenditures to support a dividend growth rate between 3% and 5% in the near future, offering shareholders a forward yield of 6%.
Despite a challenging macro environment, TC Energy reported a 10% year-over-year increase in comparable EBITDA in the first half of 2024. The company recently announced the spin-off of its Liquids Pipelines business, creating additional shareholder value. The pipeline business continues to experience rising customer demand, providing opportunities for maintaining its competitive advantages.
The spin-off entity, South Bow, will have the flexibility to invest in strategic expansion opportunities in the liquid transportation and storage sector. TC Energy will maintain its regulated and low-risk natural gas and power businesses, emphasizing its focus on long-term energy fundamentals and capital discipline.
Investors looking to generate $3,000 in annual dividend income from TC Energy would need to purchase 782 shares at the current price of $63.74 per share. There is potential for the dividend income to double to $6,000 over the next decade if TC Energy maintains its annual payout growth of 7%.
While the initial investment for 782 shares may be significant, Canadian investors can diversify their income portfolio by exploring other blue-chip dividend stocks to mitigate overall risk.
