A Top TSX Index Stock to Own for 50 Years in Your TFSA

Suncor (TSX:SU) (NYSE:SU) is down 20% from the summer high. Is this the time to buy?

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Young investors are searching for reliable stocks to add to their TFSA retirement portfolios.

The strategy makes sense, as any distributions that are paid are tax free and can be invested back into new shares to take advantage of the power of compounding. In addition, when the day comes to cash out and spend the funds, all the capital gains are yours to keep. That’s right, you don’t have to share any of the profits with the taxman.

Let’s take a look at one TSX Index stock that currently looks oversold and might be an interesting pick for your TFSA right now.

Suncor (TSX:SU)(NYSE:SU)

A quick look at all the media headlines around the desperate situation faced by Canadian energy companies would keep most investors away from the sector.

It’s true that the pipeline bottlenecks and carbon taxes are causing some players grief. Those who have to sell their oil at Western Canadian Select (WCS) prices are particularly vulnerable to ongoing delays in the construction of a new major pipeline to get Alberta oil to international markets.

However, not all companies are feeling the same pain.

Suncor, for example, reported strong Q3 2018 results. The company generated $3 billion in funds from operations and operating earnings of $1.6 billion, or $0.96 per share, compared to $0.52 per share in Q3 2017.

The downstream assets, which include the refining and Petro-Canada retail locations benefitted from lower input costs. In addition, Suncor is able to get WTI or Brent pricing for much of its production due to favourable market access. Production gains came from the Fort Hills oil sands facility that was completed late last year and is now operating at target production rates.

Suncor also finished the Hebron offshore platform in the Atlantic at the end of 2017 and production continues to ramp up at the project.

Additional offshore developments include White Rose, Oda, and Fenja.

Suncor raised its dividend by 12.5% in 2018 and has increased its share buyback program from $2.15 billion to $3 billion through the beginning of May 2019. That would be about 5% of the outstanding common share float.

Investors should see another solid dividend hike in 2019. The current quarterly payout of $0.36 per share provides an annualized yield of 3.3%.

Should you buy?

The stock is down below $44 per share from $55 this summer. The drop in WTI oil from US$76 per barrel in early October to the recent price near US$56 has caught many pundits by surprise given the new sanctions against Iran and the ongoing production declines from Venezuela.

If OPEC decides to restrict output, rather than pump more oil to offset the Iran impact, oil could quickly move back to the recent highs or even test US$80 per barrel next year.

Suncor has a strong balance sheet and the integrated business structure provides a nice hedge against volatility in oil prices. Oil is unlikely to be replaced by renewable energy as quickly as many people predict, so Suncor probably has decades of good profit generation on the horizon.

If you have some cash sitting on the sidelines, Suncor might be an attractive pick at the current price.

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 stock mentioned.

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