Let’s take a look at these two companies to see which one deserves your money.
Suncor Energy Inc.
Suncor is Canada’s largest integrated energy company. The diversification of its assets gives Suncor and its investors a nice hedge against volatility in the oil market.
Aside from the vast oil sands resources, Suncor also operates four large refining facilities and a retail network of service stations. Low oil prices reduce income from the production assets, but they can be a positive for the other parts of the business.
When oil prices drop, feedstock costs for the refining operation are reduced, which should improve margins on some of the finished products. At the same time, much lower gasoline and diesel prices tend to encourage people to buy bigger cars, and companies can also afford to add more vehicles to their commercial fleets. This translates into better fuel sales for Suncor’s retail division.
Suncor’s share price has held up well during the oil rout. In fact, the stock is up almost 5% in the past 12 months. Suncor currently trades for about 18.5 times trailing earnings.
The company pays a dividend of $1.12 per share that yields about 3%. The dividend has increased 180% in the past five years.
Crescent Point Energy Corp.
Crescent Point is a favourite among dividend investors. The $2.76 per share distribution currently yields about 8.7%. When a dividend rate gets this high, it normally signals an impending cut because the market doesn’t believe the payout is sustainable.
Crescent Point’s business model is built around the attractive payout. By giving investors a generous return, Crescent Point has always been able to raise the capital it needs for acquisitions and development.
The company had a solid track record of standing firm on the distribution during difficult times. Crescent Point held the dividend steady during the Great Recession, and so far, has committed to maintaining the payout through the current oil rout.
The company has a fantastic portfolio of assets and a strong balance sheet. It has also hedged a significant part of its production at more than $90 per barrel for the first half of 2015.
Crescent Point’s dividend has remained unchanged in the past five years and the stock price has dropped 18% in the last 12 months. The shares currently trade for about 36 times trailing earnings.
Which should you buy?
As a long-term investment, Suncor is probably the safer way to go. The company consistently raises the dividend and the integrated model helps offset lower revenue during weak periods in the oil market. It is also trading at a more attractive price. If oil prices go lower and stay there, Crescent Point will eventually have to cut the distribution.
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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.