4 Reasons to Make Suncor Energy Inc. Your Top Oil Stock

Here’s why Suncor Energy Inc. (TSX:SU)(NYSE:SU) looks like an attractive pick if oil tanks again.

| More on:
The Motley Fool

Contrarian investors are watching the sell-off in the oil sector with greedy eyes.

Let’s take a look at the reasons why Suncor Energy Inc. (TSX:SU)(NYSE:SU) might be an attractive pick on further weakness.

Diversified businesses

Suncor is Canada’s largest integrated energy company with operations all along the oil value chain.

This diversified revenue stream is a big reason the stock has held up so well throughout the oil rout and is still a core reason for owning the shares.

Suncor’s upstream operations essentially consist of the company’s oil sands assets. The oil crash has forced producers to take a hard look at expenses, and Suncor’s management team has done a good job of reducing oil sands operating costs.

In fact, Q4 2016 cash operating costs were down to $24.95 per barrel, compared to $28 per barrel the previous year.

Suncor also owns four large refineries, and a retail business that includes more than 1,500 Petro-Canada service stations.

The refining and marketing group provides a nice hedge during difficult times in the upstream segment.

Production growth

Suncor is growing its business through a combination of strategic acquisitions and organic development. Oil sands production hit a record 504,900 barrels per day (bbl/d) in 2016.

The company was successful in its efforts to purchase Canadian Oil Sands last year in a deal that has given Suncor a majority interest in Syncrude.

Suncor also acquired an additional stake the Fort Hills development in 2016, bringing its ownership position to about 51%. Fort Hills is expected to begin production by the end of 2017.

In addition, the Hebron offshore project is scheduled to go online later this year.

Strong balance sheet

Suncor finished 2016 with $3 billion in cash and cash equivalents and had about $6.5 billion in available credit facilities at the time the 2016 year-end report was released.

This provides Suncor with the firepower to finance ongoing capital requirements for its development projects as well as to take advantage of any additional opportunities to add new resources.

Dividend Safety

Suncor recently raised its quarterly dividend by 10% to $0.32 per share. The distribution should be safe and currently provides a yield of 3.2%.

Should you buy?

Oil prices are coming under pressure again as rising U.S. production continues to provide a headwind against OPEC’s efforts to reduce global supplies.

Some analysts see WTI oil rebounding to US$70 by the end of the year, while others say WTI could be headed back to US$40.

Where we go from here is anyone’s guess, but investors who believe oil will recover over the medium term might want to start adding Suncor to their portfolios on further weakness.

The company can ride out another downturn, and shareholders get paid a nice dividend while they wait for a recovery.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »