Should You Buy Suncor Energy Inc. on its Latest Pullback?

Suncor Energy Inc (TSX:SU)(NYSE:SU) has taken a dip. Should you add it to your portfolio?

| More on:
The Motley Fool

The recent plunge in oil prices has clobbered the energy patch, and no company has felt the pain more than Suncor Energy Inc (TSX: SU)(NYSE: SU).

Since mid-June, shares of the country’s largest oil producer have skidded nearly 20%. Shareholders have watched an astounding $9 billion in market capitalization vanish over that time.

Suncor’s recent financial results have also been dreadful. Revenue during the third quarter was $10.3 billion, compared to $10.4 billion a year earlier. Net earnings came in at $919 million or 63 cents per share, down from nearly $1.7 billion or $1.13 per share last year.

So, is it time to dump Suncor? Nope. Aside from lower oil prices, the bull thesis here hasn’t changed. If anything, there’re a couple of reasons why now might be time to buy in.

Suncor is still a source of reliable dividends. And that payout is expected to keep growing. Since taking the helm in 2011, CEO Steve Williams has dialled back the company’s expansion plans and vowed to return more cash to investors. In just the past three years, he has more than doubled the size of Suncor’s dividend and repurchased over 11% of the firm’s outstanding shares.

Suncor typically announces a dividend hike at the start of each year. Analysts expect another double-digit percentage increase next spring, though the actual hike may be less than that. However, management has been clear that sharing profits with shareholders is their top priority.


Source: Suncor Investor Presentation

Of course, Suncor cannot continue to boost its dividend without growing profits. But while the firm’s recent numbers haven’t been great, let’s take a look at this picture with a wider perspective.

For 2014, analysts expect Suncor to earn about $3.55 a share, up only marginally from $3.13 in 2013. However, it’s more than 50% larger than what the company earned per share in 2004. Clearly, Suncor has not been standing still.

That growth should continue. Oil sands production is on track to increase by 45% through 2019. Barring another big drop in energy prices, Suncor is going to be gushing cash flow. That means more buybacks, more dividend hikes, and more acquisitions.

Finally, the outlook for the Alberta oil sands is getting better. A Republican controlled Senate south of the border bodes well for TransCanada Corporation’s Keystone XL pipeline. Enbridge Inc also has plans to add one million barrels per day of export capacity over the next three years.

As kinks in the energy supply chain clear, drillers will begin to access new markets. We’re already seeing the price of oil sands bitumen rally against other crude blends. That means Suncor won’t just be pulling more barrels of oil out of the ground, but it will likely start earning more on each one produced.

As a dividend investor, I try to focus on the long haul. While the past few years haven’t been much fun for shareholders, it would be foolish to count Suncor out. The company has faced adversity before, but it has always emerged stronger. I don’t expect this time to be any different.

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 Robert Baillieul has no position in any stocks mentioned.

More on Dividend Stocks

Dividend Stocks

2 REITs to Buy to Earn Like a Lazy Landlord

Becoming a landlord and managing the property yourself may give you the most direct exposure, but it also comes with…

Read more »

money cash dividends
Dividend Stocks

Beat the TSX Immediately With This Cash-Gushing Dividend Stock

This dividend stock has already beat the TSX today, even from 52-week lows. But it could only be the beginning.

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

This 8% Dividend Stock Pays Cash Every Month

Earn monthly cash of $154 with this 8% dividend stock.

Read more »

oil tank at night
Dividend Stocks

Think Oil Is Going Higher? 3 Dividend Stocks to Buy Now

Looking for steady dividend growth? These three Canadian oil stocks could provide substantial dividend income in the coming years.

Read more »

Profit dial turned up to maximum
Dividend Stocks

This 7% Dividend Stock on the TSX is Worth Watching

With this superb TSX stock now trading at the bottom of its 52-week range, it's certainly a dividend stock you'll…

Read more »

Dots over the earth connecting the world
Dividend Stocks

1 Magnificent Dividend Stock Down 23% to Buy Right Now Near a Once-in-a-Decade Valuation

Patient investors could be happy with this dividend stock a few years down the road.

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

2 TSX Dividend Stocks to Buy While They Still Offer Great Yields

These top dividend-growth stocks now offer 7% dividend yields.

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Dividend Stocks

Best Stocks to Buy in May 2024: TSX Real Estate Sector

Besides yielding stable monthly passive income, these top TSX real estate stocks could help you earn high returns on your…

Read more »