TC Energy (NYSE:TRP) is in the midst of an ambitious 30 billion Canadian dollar ($22.8 billion) expansion program. The Calgary-based energy company has completed CA$8.2 billion ($6.2 billion) of those projects so far this year, which resulted in significant growth during the third quarter even though it sold several assets to help pay the new ones. With more expansions under construction and in development, TC Energy continues to believe it can grow its dividend, which currently yields 4.5%, at an 8% to 10% annual rate through 2021.

TC Energy's third-quarter results

Metric

Q3 2019

Q3 2018

Change

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

$2.34 billion

$2.06 billion

14%

Comparable distributable cash flow (DCF)

$1.66 billion

$1.41 billion

17.3%

DCF per share

$1.78

$1.56

14.1%

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

TC Energy's earnings and cash flow surged during the third quarter due to nearly across-the-board growth in its five operating segments:

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

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

Earnings from TC Energy's Canadian gas pipelines unit rose 9.6% year over year. The main driver was higher incentive earnings and increased depreciation on its Canadian Mainline system. The U.S. gas pipelines segment's earnings, meanwhile, rose 11.3% due to growth projects placed into service on its Columbia Gas and Columbia Gulf systems. Those more than offset the impact of the sale of some of its Columbia Midstream assets during the quarter. The company's Mexico gas business, on the other hand, generated stable earnings thanks to the predictable, long-term contracts backing those assets.

TC Energy's liquids pipelines segment grew its earnings 23% year over year due to higher volumes on its Keystone Pipeline System and increased liquids marketing activities. Those factors more than offset the sale of an 85% interest in its Northern Courier system.

Finally, the company's power and storage segment generated nearly 22% year-over-year earnings growth due to higher power prices and output at Bruce Power. Those factors more than offset the sale of the Cartier Wind power facilities and Coolidge generating station.

A hand putting another coin on a rising stack.

Image source: Getty Images.

A look at what's ahead for TC Energy

The scope of TC Energy's expansion program far exceeds the company's internal financing capabilities, so it has had to get creative about securing funding. One way it has bridged the gap is by selling non-core assets. It completed CA$3.4 billion ($2.6 billion) of sales through the first nine months of this year, and recently agreed to sell its Ontario gas-fired power plants for CA$2.87 billion ($2.2 billion). That deal should close early next year, bringing the total proceeds to CA$6.3 billion ($4.8 billion).

CEO Russ Girling commented on these moves in the earnings release.

Each of these transactions allowed us to surface significant value and redeploy the proceeds into our CA$30 billion ($22.8 billion) secured capital program, thereby reducing our need for external funding including common equity. When combined with our significant internally generated cash flow and access to debt capital markets, we are well positioned to prudently fund our capital program in a manner that maximizes earnings and cash flow per share and is consistent with achieving targeted run-rate credit metrics including debt-to-EBITDA in the high four times area.

Because of that, TC Energy doesn't believe it will need to sell any more stock to finance its current slate of projects. However, the company will likely sell additional assets. For example, it's aiming to sell 75% of its Coastal GasLink pipeline project to help finance a large portion of its CA$6.6 billion ($5 billion) price tag.

In addition to the projects currently under construction, "TC Energy also continues to progress more than $20 billion ($15.2 billion) of projects under development, including Keystone XL and the Bruce Power life extension program," stated Girling. He further noted that "success in advancing these and other growth initiatives that are expected to emanate from our five operating businesses across North America could extend our current dividend growth outlook of 8% to 10% through 2021." The company made some progress on extending its expansion program during the quarter by securing the CA$1.2 billion ($900 million) West Path Delivery Program, which should come online between the fourth quarter of 2022 and 2023.

More proof that TC Energy is an excellent dividend growth stock

TC Energy's Q3 results demonstrate its ability to execute on its ambitious strategy. The company has completed several expansion projects this year, which fueled fast-paced earnings and cash-flow growth even though it also sold some assets. With more of the same coming down the pipeline, the company appears to have the fuel it needs to grow while maintaining its financial strength. That's what makes it such a perfect stock for income-focused investors like retirees.