This High-Yield Dividend Stock Could Be a Big Winner

TC Energy (NYSE: TRP) is just starting to hit an inflection point. The Canadian energy infrastructure giant is working through a massive backlog of expansion projects, which should drive significant earnings growth over the next few years. The company believes this will provide it with the fuel it needs so that it can grow its dividend -- which already yields an attractive 4.6% -- at an 8% to 10% annual pace through at least 2021. That high-octane dividend growth should help TC Energy generate market-beating total returns, making it an excellent stock for income-focused investors to consider buying.

Everything's in place to deliver high-octane earnings growth

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TC Energy CEO Russ Girling laid out the bull case for his company on its first-quarter conference call. The CEO pointed out: "Today we are advancing 30 billion Canadian dollars [$22.2 billion] of secure projects that are expected to enter service by 2023. ... We have invested approximately CA$10 billion [$7.4 billion] into that program to date with approximately CA$7 billion [$5.2 billion] of those projects expected to enter service in 2019."

As Girling notes, TC Energy is about a third of the way through its current investment phase. However, this growth-focused spending is already paying dividends. During the first quarter, for example, TC Energy's earnings and cash flow surged double digits thanks to the CA$5.3 billion ($3.9 billion) of projects it completed during the quarter, as well as the continued benefit from the CA$4 billion ($3 billion) it finished last year. With more project completions on the way, the company's earnings should continue increasing at a rapid rate.

Girling pointed out that its investments over the past few years have already helped increase its EBITDA from CA$5.9 billion ($4.4 billion) in 2015 up to a record CA$8.6 billion ($6.4 billion) last year. Meanwhile, the CEO noted that EBITDA is "expected to reach approximately CA$10 billion [$7.4 billion] by 2021." He pointed out that this "equates to a compound average growth rate of about 9% over the six-year period." Further, the company has improved the overall stability of its earnings profile by increasing the percentage that comes from predictable regulated assets and long-term contracts up to more than 95% of the total.

In addition to the projects TC Energy already has under construction, it's advancing another CA$20 billion ($14.8 billion) that are currently in development. That led Girling to comment that "any one of those projects could further enhance our growth profile, as well as our strong competitive North American position."

A well-fueled dividend growth machine

As Girling notes, TC Energy's current slate of expansion projects puts the company on track to significantly expand its earnings over the next few years. "Based on our confidence in our growth plans," stated Girling, "we expect to continue to grow the dividend at an average annual rate of 8% to 10% through 2021." That's a high rate considering that TC Energy already pays an above-average dividend.

Further, Girling pointed out that the company isn't stretching itself financially to grow its dividend. Instead, the company is sticking to its practice, which is that the "growth of dividends is expected to be supported by sustainable growth in earnings and cash flow on a per-share basis, and strong distributable cash flow coverage ratios." In other words, the company aims to grow the dividend at roughly the same rate as its earnings increase, which will enable it to maintain a comfortable payout ratio. That means TC Energy offers investors a high yield and a high growth rate but with low risk since it's not paying out more than it can easily afford.

Set up to produce market-beating returns

TC Energy expects its existing portfolio of energy infrastructure assets to generate enough cash to pay its 4.6%-yielding dividend with plenty of room to spare. That will give it some of the money needed to continue investing in expansion projects, which position the company to grow earnings at a 9% compound annual rate through at least 2021. Likewise, its dividend should also increase by around that same yearly rate. That dividend growth alone should give TC Energy the fuel to produce market-beating total returns. However, given its already above-average yield and anticipated fast-paced growth, this pipeline stock could be a massive winner in the coming years.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.