A Dividend Giant I’d Buy Over NVIDIA Stock #CanadaFinance

Written by Andrew Walker at The Motley Fool Canada

Investors are scrambling to get exposure to the artificial intelligence (AI) boom after watching tech stocks like NVIDIA (NASDAQ:NVDA) soar to staggering heights over the past year. This top TSX dividend stock, however, might actually be the better bet heading into 2025 as interest rates decline and funds rotate out of tech.

TC Energy (TSX:TRP) operates more than 90,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity in Canada, the United States, and Mexico. Building large new energy infrastructure projects often takes years and costs billions of dollars. TC Energy’s 670-km Coastal GasLink pipeline that received the green light in 2018, for example, reached mechanical completion last year at an estimated cost of $14.5 billion and is expected to go into commercial service in 2025. TC Energy uses debt to finance part of the capital program. As interest rates soared in 2022 and 2023, borrowing costs increased. This, along with Coastal GasLink costing more than double the original budget, contributed to the decline in TRP stock from $74 in 2022 to as low as $45 in early October last fall.

The stock has since rebounded to about $63.50 at the time of writing, and more gains could be on the way. The Bank of Canada and the U.S. Federal Reserve have reduced interest rates by 0.75% and 0.5%, respectively, with economists predicting steady reductions to continue through next year. Lower borrowing expenses boost profits and can free up more cash for dividends and debt reduction.

With the construction of Coastal GasLink now in the rearview mirror, TC Energy is focusing on the rest of its development program that will see capital expenditures of $6 billion to $7 billion per year over the medium term. As new assets go into service, there should be adequate cash flow growth to enable ongoing dividend increases.

Investors who buy TRP stock at the current level can get a dividend yield of 6%.

Interestingly, TC Energy might also turn out to be a good stock to own to get exposure to the AI boom. Natural gas is used to fuel electricity production. AI data centres consume large amounts of power, and many firms building these facilities are looking to have a standalone power-generation system for the site in order to ensure reliable power supplies. There is concern that existing power infrastructure will not be able to handle the demand from AI data centres and electric vehicles in the coming years. At the moment, there are more than 300 AI data centres planned or under construction in the United States. TC Energy says its natural gas infrastructure is within 80 km of 60% of the sites.

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