Suncor Energy Inc.  (TSX:SU)(NYSE:SU) has made growing its dividend a priority in recent years, boosting its quarterly payout from just $0.11 in 2011 to $0.29 today. Falling energy prices have called into question most dividends in the space as numerous companies of all sizes have had to reduce or even eliminate payouts.

Suncor shareholders can feel a bit of comfort, however, as last week the company’s CEO vowed to protect the dividend, even if energy prices continue to fluctuate wildly.

While that sounds heroic, here’s why Suncor will likely have no issues keeping income investors happy.

Reliable cash flows

While GAAP earnings have come under pressure (last quarter the company posted an operating loss of $0.02 per share), dividends are ultimately paid out of cash, not the income statement. In spite of accounting losses, cash flow from operations still totaled $1.3 billion ($0.90 per share), down just slightly from 2014 fourth-quarter levels of $1.5 billion.

“In 2015,” Suncor’s CEO boasted on the most recent conference call, “we generated cash flow that exceeded our annual sustaining capital and dividend commitments”. Even with a 3.6% yield, dividends only amounted to $419 million, which is well covered by cash flows.

One of the biggest reasons why cash flows remain strong is Suncor’s diversified business model. On the production side, it generates a bulk of revenues from its stake in the Syncrude oil sands project. Operating costs for the company’s oil sands interests fell to $28 per barrel, down from $34.50 just one year ago.

The company also has a significant refining business. When oil prices collapse, refining margins typically rise–a major reason why integrated oil companies such as Exxon Mobil Corporation and Chevron Corporation have fared much better than smaller, less diversified players. Operating earnings for its refining segment amounted to $498 million last quarter. Without that income stream, Suncor’s operating loss would have been 20 times bigger.

Core property positioned well for future earnings

As mentioned, a big part of Suncor’s oil production comes from its interest in the Syncrude oil sands project. Recently, the company announced a $6.6 billion takeover of Canadian Oil Sands Ltd. Because Canadian Oil Sands was also a partner in the project, Suncor’s stake will be boosted to 49% after the acquisition, which is up from just 12%.

Syncrude’s partners are excited for Suncor’s enlarged stake. China Petroleum & Chemical Corp., Asia’s biggest oil refiner, is also the fourth-largest owner of Syncrude with a 9% stake. “Hopefully this will garner a lot more interest from Suncor,” said China Petroleum’s CEO.

With the takeover, the project is now in the hands of more profitable, better managed partners, including Exxon-backed Imperial Oil Limited, which has a 25% stake.

Dividend has long-term viability

Earnings have been crushed by a variety of non-cash accounting charges, including a $1.6 billion impairment charge. Underlying cash flows, however, continue to show the strength of Suncor’s business model–specifically, its diversified approach. With lower capital expenditure needs this year and a more focused development plan at its Syncrude property, the company should have no issue backstopping its reasonable 3.6% dividend.

Looking for an even better income option?

We'd all love to have a steady stream of extra income, but who wants the hassle (and expense!) of buying and managing property and dealing with tenants? We have a much better option: real estate investment trusts (REITs) allow investors like us to purchase shares in a diversified portfolio of properties and earn a share of the profits!

Want to know more? Our just-released report, "Earn $6,000 Per Year in Rental Income Without Becoming a Landlord" has all the details. Just click here now to find out how to get your FREE copy today!


Let’s not beat around the bush – energy companies performed miserably in 2015. Yet, even though the carnage was widespread, not all energy-related businesses were equally affected.

We've identified an energy company we think offers one of the best growth opportunities around. While this company is largely tied to the production of natural gas, it doesn't actually produce the gas. Instead, it provides the equipment required to get natural gas from the ground to the end user. With diversified operations around the globe, we think it's a rare find in the industry.

We like it so much, we’ve named it as 1 Top Stock for 2016 and Beyond. To find out why, simply enter your email address below to claim your FREE copy of this brand new report, "1 Top Stock for 2016 and Beyond"!

Fool contributor Ryan Vanzo has no position in any stocks mentioned. The Motley Fool owns shares of ExxonMobil.