What with the IMF downgrading the global growth outlook, ongoing trade war machinations between East and West, rising interest rates, and any number of other economic stressors, a nervous investor might be starting to wonder whether it may indeed be time to get out of stocks.
But before you rush to sell everything you have ahead of a fiscal storm, bear in mind that even in the most dire of crashes, the stock markets have survived. Losses will be incurred, fortunes lost – but value opportunities will also open, and the sturdiest of tickers will go on ticking.
Below you will find one of the best – a favourite of the TSX index, a solid dividend payer, and one of the most defensive stocks that Canadians can get their hands on. It’s one to buy and hold long-term, even after other stocks have seen massive sell-offs, ideal for a TFSA, RRSP, or other life-long savings account.
Suncor Energy (TSX: SU)(NYSE: SU)
If you take a beefy market cap of $72 billion and mix in a solid one-year past earnings growth of 63.5%, you’ll have the basis for a truly defensive dividend superstar. That past growth beats a five-year average past earnings contraction by 3.4%, and goes nicely with a PEG exactly equal to growth, and an acceptable debt level of 39.8% of net worth.
So far as value goes, I use a mix of variables and dividends when I assess long-term defensive buys to hold for passive income. Value is one factor in a three-factor system I use to decide whether a stock is worth buying; it’s not dissimilar to some of the tools used in stock screening. Suncor Energy looks good with a P/E of 16.5 times earnings, P/B of 1.6 times book, and a steady dividend yield of 3.25%, with verifiable stability over the last ten years.
Quality is the second factor taken into account when a screening is undertaken: a ROE of 10%, reasonable EPS of $2.69, and 17.2% expected annual growth in earnings make for a decent score in this department. With momentum as a third factor, we can see that Suncor Energy’s five year beta of 1.3 relative to the market indicates low volatility.
However, it has also shed 5.31% in the last five days as part of a market-wide sell off that has seen many stocks slide post-July. Unique or not, this percentage must be factored into the overall momentum score, though bear in mind that this October has seen a general skewing of that factor across the board. Throw in a share price discounted by 16% compared to its future cash flow value, and Suncor Energy is looking a bit wobbly on momentum.
The bottom line
While any big energy company on the TSX or NYSE counts as a competitor for Suncor Energy, the fact is that this is a stand-out gem of a defensive Canadian dividend stock. The above data-wrangling gives a moderate to strong buy signal, which in today’s far from certain economic climate is about as positive a recommendation as one can hope to get.
