For TC Energy, Keystone XL Just Turned From Risk To Opportunity

Jan. 20, 2021 4:19 PM ETTC Energy Corporation (TRP), TRP:CA54 Comments24 Likes
Khen Elazar profile picture
Khen Elazar


  • The company knew that Keystone XL is going to be canceled.
  • In the meantime, it has other growth projects to support future growth.
  • Now when the project is about to be canceled its future becomes an opportunity.


In the coming days after his inauguration, President Joe Biden is expected to rescind the Keystone XL permit. Keystone XL is one of the largest planned projects in the pipeline business in America. The main loser from Biden's resolution is going to be TC Energy (NYSE:TRP).

TC Energy has a long track record of delivering online energy projects and delivering 14% total return annually over the last two decades. The company will be hurt by the cancelation of the project, but it accounts for 25% of its backlog, therefore, it is expected to be able to grow even without it in a decent rate.

The company price reflects the cancelation of the project. If somehow in the near future due to lobbying efforts, or influence of the Canadian government the project will be permitted, this will be an immense growth opportunity for the company. So, what used to be a risk of cancelation, is now a future option even if unlikely. In this article, I will analyze TC Energy using the graph below, and analyze its fundamentals, valuation, risks and opportunities.

According to Seeking Alpha company overview, TC Energy Corporation operates as an energy infrastructure company in North America. The company builds and operates 92,600 km network of natural gas pipelines, which transports natural gas from supply basins to local distribution companies, power generation plants, industrial facilities, interconnecting pipelines, LNG export terminals, and other businesses.

(Source: TC Energy website


The company managed to achieve growth in both its income and its revenues. Both top line and bottom line grew in high single-digits through the past twenty years. The growth supported robust and safe dividend. The company expects, according to its investor day presentation in November, to achieve mid to high single digits growth for top and bottom line, as this growth will support the dividend growth.

(Source: Investor Day, November 2020)

The company raised the dividend for 20 consecutive years. The company expects to be able to keep raising the dividend by roughly 6% in the medium term and roughly 9% in 2021. The cancelation of the Keystone project might have a negative effect on this outlook in the longer term.

(Source: Investor Day, November 2020)

However, the company offers a safe 5%+ yield with distributable cash flow after dividends of $1 billion. The notion of safe 5% yield with impressive growth projects in the backlog to support additional growth in the near future makes me believe that the company has very strong fundamentals.


The current yield of 5%, growing even at 5% annually will give investors a decent 10% returns with relatively low risk. The 5% figure is on the low end, and therefore in this entry price investors will achieve extremely decent returns. I expect returns to be 10%-14% annually even without the Keystone project, as the rest of the backlog is 3 times larger.

The graph below from shows that the company might still be undervalued with P/E ratio of just 14. Not only that, this valuation is lower than the company's average valuation which usually stands at 18.2. The growth rate isn't expected to be lower than the average and with energy prices recovering I find TC Energy to be attractively valued.


In my opinion, TC Energy offers a conservative investment in oil and gas pipelines. The company maintains stable and safe payout, has decent backlog to support sales, income, and dividend growth, and on top of that it trades for a valuation which in my opinion makes it attractive.


Keystone XL was the largest single project in the company's backlog. If I was to analyze the company a year ago, I would list it as risk as the company relied on it for growth. However, since then the company added growth projects in preparation for a cancelation of Keystone. Now that it is going to be canceled, the project is a future option. Maybe the Canadian government will help or maybe a new future administration in the U.S. will approve it again. Either way, the blueprints and the demand are intact and it's a future option even if unlikely in the short-term.

The company's most important growth opportunity is its leadership. The company has a conservative leadership that consistently achieve its goals. A good leadership can navigate through the challenging business environment and is likely to keep executing well and enjoy the trust of investors.

Moreover, we must remember that the Keystone XL project was in jeopardy for a long time. It left the management with time to find other projects to propel future growth. In the Q&A part of the investor day on November 2020, and again today in a press release, the CEO said that he believes that the company will use other projects to meet income and dividend growth goals. I trust the management but even under a more conservative scenario we still get 5% yield with 5%+ growth annually.

"Our base business continues to perform very well and, aside from Keystone XL, we are advancing $25 billion of secured capital projects along with a robust portfolio of other similarly high quality opportunities under development," said François Poirier, TC Energy’s President and Chief Executive Officer. "These initiatives are expected to generate growth in earnings and cash flow per share and support annual dividend increases of eight to ten per cent in 2021 and five to seven per cent thereafter."


The business environment is going to be challenging. The current four years will have a Democratic president in the United States, and the cancelation of the Keystone permit is one of his first orders. Therefore, I am afraid that in the medium-term, the company will also struggle with approval for other projects on federal lands in the United States.

The company is a dividend growth and income darling with a long track record of dividend growth. However, the company pays the dividend in Canadian dollars, and therefore investors are exposed to changes in the exchange rate between the USD and the CAD. This fluctuation can go both ways, and they simply add another layer of uncertainty.

Even if in the medium term the company will find ways to achieve growth, there is a shift towards renewable energy. The company has to deal with a Canadian and an American regulator who'll probably push towards renewables. While this is a long-term risk, as in the next two decades demand for oil and gas is still forecasted to grow, it is still important to take it into account.


TC Energy is one of the most impressive energy companies I have seen in the last years. Its resilience is key to its higher than average returns. While it offers lower yield than some of its peers, it also offers higher projected dividend growth rate, and therefore, younger investors should consider adding to it.

The current 5% yield is safe, and due to impressive backlog even without Keystone, strong fundamentals, decent valuation, and limited risks, I am bullish on TC Energy. Investors should keep in mind the main risk for the company is change of business environment by the government in the U.S. and Canada but as the demand for oil and gas is still high, I believe this risk is limited.

This article was written by

Khen Elazar profile picture
Hi everyone, my name is Khen Elazar and I am 30 years old. I am investing in the stock market since I was 17 years old. I did it with the help and guidance of my Father who is an investment adviser. I used to invest in value and growth stocks, and in Israeli junk bonds. Over the past several years, I have been investing mainly in dividend growth stocks. I also enjoy reading and study new subjects. I am a political junkie and Sport enthusiast, mainly soccer and NBA.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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