The second quarter of 2020 was the most challenging period in the energy market's history. Demand collapsed because of COVID-19, taking crude oil prices with it. That ravished the finances of most energy companies, forcing several to file for bankruptcy.

However, as bad as market conditions were, they had little impact on Canadian energy infrastructure giant TC Energy (NYSE:TRP). Because of that, the company's dividend -- which currently yields 5.3% -- is one of the few that survived this year's market downturn.

Drilling down into TC Energy's second-quarter earnings

Metric

Q2 2020

Q2 2019

Change

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

$2.199 billion

$2.324 billion

-5.4%

Comparable funds generated from operations

$1.549 billion

$1.667 billion

-7.1%

Cash flow per share

$1.65

$1.80

-8.3%

Dividend payout ratio

49%

42%

16.7%

Data source: TC Energy. NOTE: All figures in Canadian dollars (current exchange rate $0.75=CA$1.00)

While TC Energy's earnings and cash flow declined slightly in the second quarter, the company's diversified operations performed well during the challenging period:

TC Energy's earnings by segment in the second quarter of 2020 and 2019.

Data source: TC Energy. Chart by author.

Earnings from the company's Canadian natural gas pipelines rose by a brisk 17.6%. Fueling that growth was higher rates and additional assets placed into service over the past year. Meanwhile, earnings from its gas pipelines in Mexico also surged -- up 28.4% year over year -- due to the Sur de Texas pipeline, which came online in late 2019.

The strong result in those two segments helped offset weakness elsewhere. One of the major factors weighing on those results was asset sales.

TC Energy sold its Columbia Midstream assets (U.S. natural gas pipelines), 85% of its equity interest in Northern Courier (liquids pipelines), and its Ontario natural gas plants and its Mackay River cogeneration facility (power and storage) over the past year to bolster its balance sheet. The only other notable issue was some weakness in its liquids pipelines due to reduced uncontracted volumes on its Keystone Pipeline because of falling oil prices.

A money bag with the word dividends written on it.

Image source: Getty Images.

A look at what's ahead for TC Energy

TC Energy is in the middle of an industry-leading 37 billion Canadian dollar ($27.5 billion) expansion program. The company completed CA$3 billion ($2.2 billion) of new assets during the first half of 2020 and should finish with CA$2 billion ($1.5 billion) more by year-end. These growth projects support the company's view that it can increase its dividend by another 8% to 10% next year and grow it at a 5% to 7% annual rate post-2021.

"Our significant internally generated cash flow, strong financial position, and continued access to capital markets will enable us to prudently fund our secured capital program in a manner that is consistent with maintaining our strong credit ratings and targeted credit metrics," stated CEO Russ Girling. The company ended the quarter with CA$11 billion ($8.2 billion) of liquidity after completing the sale of its Ontario natural gas-fired power plants and taking advantage of low interest rates to issue new debt.

Once TC Energy completes its current slate of expansions, "approximately 98% of the company's consolidated comparable EBITDA is expected to come from regulated and/or long-term contracted assets." That's up from 95% this year, which will further insulate it from volatility in energy prices and volumes. With increasingly stable cash flow, a conservative dividend payout ratio, and a top-notch balance sheet, TC Energy's dividend is on rock-solid ground.

One of the lowest risk dividends in the energy sector

The durability of TC Energy's business model was on full display during the second quarter as the oil market downturn had little impact on its results. Add in its strong financial profile, and its dividend will have no problem surviving these challenging times.

Because of that and the company's growth profile, there's increasing confidence that TC Energy can continue growing its payout, which it has now done for 20 straight years. That makes it an excellent option for dividend investors.