TC Energy (NYSE:TRP) has richly rewarded income investors over the years. The Canadian pipeline giant has increased its payout each year since 2000, which has given it the fuel to generate 14% total annual returns over that time frame. The company currently believes it has enough fuel to continue boosting its payout at a healthy rate through at least 2021.

That outlook looks increasingly achievable in light of TC Energy's second-quarter results, which showed that it's well on track with its plan. The company continues to look like a great income stock to own for the long haul.

Drilling down into the numbers

Metric

Q2 2019

Q2 2018

Year-Over-Year Change

Comparable earnings before interest, taxes, depreciation, and amortization (EBITDA)

$2.32 billion

$1.99 billion

16.7%

Comparable distributable cash flow (DCF)

$1.67 billion

$1.46 billion

14.3%

DCF per share

$1.64

$1.46

14.4%

Data source: TC Energy. All figures in Canadian dollars. Current exchange rate 1 Canadian dollar = $0.76.

TC Energy benefited from operating a diversified portfolio of energy infrastructure assets during the second quarter. That's evident in the following table, as its U.S. natural gas pipelines and liquids pipelines segments more than made up for weaker results elsewhere:

TC Energy's earnings by segment in the second quarter of 2018 and 2019.

Data source: TC Energy. Chart by author. All figures in Canadian dollars. 

TC Energy's U.S. natural gas pipelines business led the way in the second quarter. Earnings soared 22% versus the year-ago period because of the recent completion of growth projects on its Columbia system, as well as the positive impact from a stronger U.S. dollar. Meanwhile, profits in the liquids pipeline business unit rocketed more than 40% during the period. Fueling that growth was higher volumes on the Keystone Pipeline system, higher earnings from the company's liquids marketing activities, and the stronger U.S. dollar.

The company's power and storage segment delivered solid results during the quarter, as earnings rose 8.4%. TC Energy benefited from higher power prices at its Bruce Power nuclear facility. That more than offset higher outage delays at that facility, as well as the sale of its Cartier Wind and Coolidge generating facility. Earnings from this segment, however, will likely be under pressure in the coming quarters. That's after TC Energy agreed to sell its interests in three natural gas-fired power plants at the end of last month, including the newly built Napanee generating facility. The company will receive $2.87 billion Canadian (US$2.2 billion) in the deal when it closes toward the end of the year.

The growth in those segments helped the company more than offset the more sluggish results of its natural gas pipelines operations in Canada and Mexico. Earnings in Canada declined by 3% year over year because of a lower flow-through of income taxes on its two top systems. Meanwhile, Mexico's earnings were relatively flat thanks to the long-term contracts backing those systems.

A money bag with the word dividends written on it.

Image source: Getty Images.

What management had to say

"During the second quarter of 2019, our diversified portfolio of critical energy infrastructure assets continued to perform very well," stated CEO Russ Girling. He further noted that: "Comparable earnings per share increased 16% compared to the same period last year while comparable funds generated from operations of CA$1.7 billion ($1.3 billion) were 14% higher. The increases reflect the strong performance of our legacy assets and contributions from approximately CA$5.6 billion ($4.2 billion) of growth projects that entered service in the first half of 2019."

TC Energy has plenty more growth coming down the pipeline. Girling pointed out that:

With our existing assets benefiting from continued high utilization rates and CA$32 billion ($24.2 billion) of secured growth projects under way, approximately CA$7 billion ($5.3 billion) of which are expected to be completed by the end of the year, we expect our strong operating and financial performance to continue. They are underpinned by regulated or long-term contracted business models that are expected to support annual dividend growth of eight to 10% through 2021. We have invested $11 billion ($8.3 billion) in these projects to date and are well positioned to fund the remainder of our secured growth program.

The company has undertaken several actions to ensure it has the financial flexibility to grow its dividend even as it continues investing in new projects. In addition to agreeing to sell some natural gas power plants, the company sold a stake in its Northern Courier Pipeline and some of Columbia Midstream's assets. As a result, the company has secured CA$6.3 billion ($4.8 billion) in proceeds from assets sales. When combined with the excess cash it retains after paying the dividend, and its other funding options, the company is well-positioned to finance its expansion plan. Further, these moves will help drive TC Energy's leverage ratio down to its target level by year-end.

Meanwhile, TC Energy continues to make progress on more than CA$20 billion ($15.1 billion) of additional expansion projects. "Success in advancing these and other growth initiatives...could extend our growth outlook well into the next decade," concluded Girling.

A great dividend growth stock for the long haul

TC Energy remains an excellent option for income-seeking investors. The Canadian pipeline company is taking advantage of the need for new energy infrastructure in North America to expand its operations, which is growing its cash flow and dividend. With the company also securing the funding to build these projects, it appears well positioned to continue richly rewarding investors in the coming years.