Are you able to clarify what’s going on with TC Power Corp. (TRP)? The shares have fallen about 20 per cent previously yr, and the yield is now about 6.6 per cent, which makes me nervous. Ought to I be nervous a few dividend minimize?
Everyone seems to be feeling the pinch of inflation on the grocery retailer and the gasoline pump. However for TC Power TRP-T, inflation has created a multibillion-dollar headache with far-reaching implications for its enterprise and inventory value.
The market’s important preoccupation is that prices are hovering at TC Power’s Coastal GasLink challenge, a 670-kilometre pipeline that may ship pure gasoline from northeastern B.C. to a liquefied pure gasoline export terminal in Kitimat. In its most up-to-date price replace, TC Power estimated that Coastal GasLink’s price ticket has jumped to $14.5-billion – greater than double the preliminary price range of $6.6-billion – with an extra improve of $1.2-billion attainable if development extends nicely into 2024.
Rising labour prices, expert employee shortages, development delays and disputes with contractors have all contributed to the challenge’s ballooning price range. The runaway prices are forcing TC Power to discover methods to boost money to strengthen its steadiness sheet, protect its credit score scores and fund different tasks in its $34-billion secured capital spending program.
Promoting belongings is on the prime of the record of choices. TC Power has mentioned it’s aiming to divest not less than $5-billion of belongings in 2023 to assist with its deleveraging and capital spending plans. However some analysts have been urging the corporate to be much more aggressive to alleviate traders’ issues.
“We consider an asset monetization program within the $10-billion to $15-billion vary may present quite a few advantages to the corporate,” mentioned Robert Kwan, an analyst with RBC Dominion Securities, in a current be aware to shoppers. Particularly, it could tackle issues about funding TC Power’s capital plans, considerably enhance the corporate’s debt ratios and alleviate worries about its credit score scores, he mentioned.
TC Power’s debt is rated funding grade, however score businesses modified their outlooks to “unfavorable” from “steady” in gentle of the fee will increase at Coastal GasLink.
TC Power experiences fourth-quarter loss on account of rising prices of Coastal GasLink
“The unfavorable outlook signifies the uncertainty concerning the timing and quantity of the anticipated asset gross sales crucial to make sure the corporate can obtain a debt-to-EBITDA [earnings before interest, taxes, depreciation and amortization] ratio of lower than 5.0x, according to the score,” Customary & Poor’s mentioned in a Feb. 1 information launch. S & P charges TC Power at BBB+, which is three notches above speculative grade.
Including to TC Power’s woes, the corporate recorded a $650-million “environmental remediation legal responsibility” within the fourth quarter after a significant spill on a piece of its Keystone pipeline in Kansas. S & P mentioned it expects the price of the December leak “will largely be reimbursed by way of insurance coverage. Nonetheless, TC might want to fund the cleanup till such recoveries are acquired, which can additional pressure the corporate’s monetary metrics.”
Now, about that 6.6-per-cent dividend yield. Sure, it’s nicely above TC Power’s five-year common of about 4.9 per cent, but it surely’s not so egregiously excessive that it’s signalling a dividend minimize. Certainly, TC Power raised its dividend by 3.3 per cent in February – the twenty third consecutive annual improve – which isn’t what one would have anticipated if the dividend had been in any hazard.
It’s additionally price noting that, on the fourth-quarter earnings name in February, TC Power’s chief government officer, François Poirier, reiterated that the corporate expects to proceed to develop its dividend at an annual fee of three per cent to five per cent.
“I’ll remind everybody … that [declaring dividends] is a board choice. However by way of what administration could be recommending, we don’t foresee any must make any modifications to our long-term dividend development vary,” Mr. Poirier mentioned.
Even with TC Power’s present challenges, some analysts see the inventory’s weak spot as a lovely entry level for long-term traders. Matthew Weekes, an analyst with iA Capital Markets, not too long ago upgraded his score on the shares to “purchase” from “maintain” with a value goal of $62. The shares closed Friday at $56.18.
Though Mr. Weekes stays cautious about “execution danger” in terms of Coastal GasLink and potential asset gross sales, he believes the corporate “will have the ability to handle by way of these headwinds over the following couple of years.” He cited the corporate’s in depth pure gasoline pipeline footprint in North America, its steady, fee-based and contracted money flows and TC Power’s projected earnings development over the following a number of years, pushed by low-risk tasks.
In gentle of the various uncertainties going through the corporate, TC Power’s share value may stay below stress for some time. However I’m assured that the corporate will finally bounce again from this episode. Within the meantime, I’ll proceed to gather my dividends and stay up for the following improve roughly a yr from now.
Disclosure: The creator owns shares of TC Power personally and in his mannequin Yield Hog Dividend Progress Portfolio. View it on-line at tgam.ca/dividendportfolio
E-mail your inquiries to [email protected]. I’m not capable of reply personally to e-mails however I select sure inquiries to reply in my column.
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