1 TSX Value Stock You Can Hold for Years

An oil sands king in Canada remains a top TSX value stock due to its incredible business model. You can purchase the Suncor Energy stock in 2021 and hold it for years.

One of Canada’s largest integrated energy companies fell out of investors’ favour in 2020. The oil price war and the global pandemic beat Suncor Energy (TSX: SU)(NYSE: SU) to a pulp. Management had no recourse but reduced dividends by 55% last year to preserve capital and protect the balance sheet.

Nonetheless, the energy stock remains a value stock, at least to Berkshire Hathaway. As of December 31, 2020, Suncor Energy is the lone Canadian stock in Warren Buffett’s conglomerate. It currently holds 13.8 million shares of the oil sands king. Also, the holding is significant because Berkshire counts as among Suncor’s top-25 shareholders.

Investment since 2013

The GOAT of investing first bought Suncor shares in 2013. After three years, in 2016, Berkshire sold its entire position. No one expected Buffett to take a second stab at the energy stock, but he did. In Q4 2018, his company invested anew and has kept the stock since.

In Q1 2020, Berkshire trimmed its position only to buy 4.25 additional shares of Suncor in Q2 2020. Buffett’s firm shed nearly 27% of the holdings but didn’t sell the energy stock altogether. It seems Suncor remains a value proposition, given that Buffett invests for the long term.

Dependable assets

The investment philosophy of value investors is to buy undervalued companies versus their intrinsic values. Suncor continues to struggle in 2021, although the energy stock is up 29% year to date. If you were to invest in the oil kingpin today, the share price is $21.53, and the dividend yield is a decent 3.19%.

Suncor Energy has been generating stable cash flows and paying high dividends consistently before the COVID-19 pandemic. Its oilfields have an economic lifespan of almost 26 years. In Alberta, the company is one of the lowest cost producers. Notably, the dividend cut was a masterful stroke because it shored up the balance sheet.

The oil rebound is at hand, and Canada’s biggest oil sands producers are starting to generate billions of dollars again. Suncor is the best-in-class among the group. Management projects an additional cash flow of $400 million in 2021 and $1 billion by 2023.

More effort to low-carbon future

Some market observers and green shareholders want energy companies to work seriously towards a low-carbon future. According to NEI Investment’s director of corporate engagement, Jamie Bonham, NEI could drop energy stocks if progress doesn’t come soon.

The criticism now is that oil sands companies need more than profit to survive. Canada has a net-zero emissions goal by 2050. Steve Peacher, president of SLC Management, a subsidiary of Sun Life Financial, said, “We won’t lend to energy firms that we don’t think are doing that.”

Meanwhile, Suncor will spend additional cash on repaying debts and repurchase shares. Management has a 10% allocation of capital for a wind farm and cogeneration project. Mark Little, Suncor’s CEO, said, “If you’re structurally cutting shareholder returns to take their cash and invest it in the transition, that’s going to be tough.” He adds the company needs shareholders’ and the capital markets’ support.

An anchor in many stock portfolios

Suncor Energy wants to regain investors’ confidence following its dismal performance last year. The energy stock has been an anchor or mainstay in many Canadian portfolios. Its incredible business model makes it a value stock to hold for years.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares) and long January 2023 $200 calls on Berkshire Hathaway (B shares).

More on Dividend Stocks

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

How Big Does Your TFSA Need to Be to Pay $1,000 a Month?

A TFSA yielding 6% would need roughly $200,000 to produce $1,000 in average monthly income.

Read more »

Data center servers IT workers
Dividend Stocks

Data Centres Need Power, but Higher Rates Change the Math: I’d Watch This TSX Stock

The computers may be futuristic. Getting paid for supplying their electricity is pleasantly old-fashioned.

Read more »

man looks surprised at investment growth
Dividend Stocks

Withdrawing From Your TFSA? This Timing Mistake Could Cost 1% a Month

A TFSA withdrawal is tax-free, but replacing it too soon can accidentally create an expensive overcontribution.

Read more »

man in suit looks at a computer with an anxious expression
Dividend Stocks

I’m Putting My Next $2,000 Into This 4.5% Dividend Stock

Brookfield Asset Management (TSX:BAM) has a 4.5% dividend yield.

Read more »

dreaming of financial success
Dividend Stocks

How Dividends, CPP and OAS Can Fit Together in Retirement

CPP and OAS rarely pay for a full retirement. Here's how quality TSX dividend stocks such as BAM can fill…

Read more »

Canadian investor contemplating U.S. stocks with multiple doors to choose from.
Dividend Stocks

Enbridge vs. Telus: The Dividend Stock I’d Put $10,000 Into Today

Both Enbridge and Telus stocks have been favourites among income investors for their dividend yield and growth.

Read more »

money goes up and down in balance
Dividend Stocks

Foreign Money Is Pouring Into Canadian Banks: Is This One Still Worth Buying?

I’d still consider BNS for a long-term portfolio, although I’d build the position gradually rather than chase a rally that…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Make $250 a Month Tax-Free: The 4-Stock TFSA Plan I’d Follow

If you are looking to generate $250/month of tax-free passive income, this TFSA portfolio will provide a long-term, growing income…

Read more »