TC Energy: 5% Dividend vs. Debt Risk

Published: March 8, 2026  |  Pipelines

Investment Thesis

TC Energy Corporation (NYSE: TRP, TSX: TRP) is one of North America's premier natural gas infrastructure companies, operating approximately 93,000 kilometers of natural gas pipelines across Canada, the United States, and Mexico. Following the October 2024 spinoff of its liquids pipeline business into South Bow Corporation, TC Energy has emerged as a pure-play natural gas and power generation company — a strategic repositioning that sharpens its investment thesis but also concentrates risk in a single commodity corridor.

For income investors, TC Energy's appeal centers on its approximately 5% dividend yield, a 24-year track record of consecutive annual dividend increases, and the essential nature of its regulated and contracted natural gas transportation infrastructure. However, this is not a risk-free income story. The company carries a significant debt burden that demands careful scrutiny, and the post-spinoff balance sheet requires a clear deleveraging trajectory to maintain investment-grade credit ratings.

Key Financial Metrics

Post-Spinoff Profile

The separation of South Bow was a transformative event. TC Energy retained its natural gas pipelines — including the NGTL System in western Canada, the Canadian Mainline, the Columbia Gas and Columbia Gulf systems in the US Southeast, and the Sur de Texas pipeline in Mexico — along with its Bruce Power nuclear generation stake and its pumped hydro storage assets. The result is a company with approximately 95% of comparable EBITDA derived from regulated or long-term contracted assets, providing exceptional revenue visibility.

The Canadian Natural Gas Pipelines segment, centered on the NGTL System, benefits from cost-of-service regulation that allows TC Energy to earn a regulator-approved return on its rate base. The US Natural Gas Pipelines segment, anchored by the Columbia systems, serves high-demand markets in the Appalachian and Gulf Coast regions. The Mexico pipeline operations, including the Sur de Texas marine pipeline, are underpinned by 25-year take-or-pay contracts with Mexico's state utility CFE.

The Debt Question

Here lies the crux of the TC Energy debate. With net debt of approximately C$37 billion and a Debt/EBITDA ratio hovering near 4.7x, TC Energy is leveraged above the comfort zone for most midstream investors. Management has committed to a deleveraging target of 4.75x by the end of 2024, declining to the low 4x range over the medium term, primarily through a C$3+ billion asset divestiture program, retained cashflow, and moderated growth capital spending.

The company has made progress, completing several asset sales and reducing its secured capital program. However, the timeline for achieving a sub-4.5x leverage ratio depends on execution of remaining divestitures and the pace of EBITDA growth from recently completed projects. Rising interest rates have also increased the cost of refinancing maturing debt, which pressures distributable cashflow and the dividend coverage ratio.

Dividend Sustainability

TC Energy's dividend has been raised annually for 24 consecutive years, a record matched by very few midstream operators. The current payout ratio of approximately 60-65% of distributable cashflow provides a reasonable buffer, and management has guided for 3-5% annual dividend growth. However, any deterioration in the deleveraging plan could force a reassessment of dividend growth ambitions. The 2024 spinoff itself was partly motivated by the need to unlock value and create balance sheet flexibility to protect the dividend.

Risk Assessment

Beyond leverage, key risks include Canadian withholding tax for US investors (15% under the treaty), regulatory proceedings on the NGTL System's rate of return, and execution risk on the Southeast Gateway pipeline project in Mexico. The concentration in natural gas, while strategically sound given the fuel's role in the energy transition, also means TC Energy is more exposed to a single commodity demand trajectory than diversified peers like Enbridge.

Verdict

TC Energy is an income stalwart with a credible 5% yield and strong regulatory protection, but the elevated debt profile is the single most important variable to monitor. If management executes on its deleveraging targets, TC Energy represents excellent value at current levels. If leverage remains stubbornly high, the dividend growth trajectory could stall. We rate TC Energy as a hold-to-accumulate for patient income investors willing to tolerate near-term balance sheet noise for long-term cashflow compounding.