Should You Buy Suncor (TSX:SU) or Canadian Natural Resources (TSX:CNQ) Stock Now?

These two top energy stocks deserve to be on your radar as oil prices pull back.

| More on:
Make a choice, path to success, sign

Image source: Getty Images

Suncor (TSX:SU)(NYSE:SU) and Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) are leaders in the Canadian energy sector. Investors who are bullish on oil and gas want to know if one is undervalued and deserves to be on their buy list today.


Suncor is Canada’s largest integrated energy company with production, refining, and retail businesses. The structure provides Suncor with a hedge against falling oil prices during times of normal fuel demand. Lower input costs can boost margins for refineries on the sale of the finished products. Lower oil prices also tend to translate into cheaper gasoline prices, which often leads to more visits to gas Suncor’s gas stations.

The model broke down last year when commuters started working from home and airlines cut more than 90% of their capacity, but fuel demand is rebounding and the trend should continue through 2022.

Suncor reported strong Q3 2021 results and the board raised the dividend by 100%. That sounds great, but the company reduced the payout by 55% in 2020, so the move simply gets the dividend back to the 2019 level.

Suncor is also paying down debt and buying back more stock. The company says it will hit its 2025 debt reduction target by the end of 2021. With more cash to spend, the board increased the current share buyback program to 7% of the stock.

Suncor trades near $32 per share at the time of writing and provides a 5.3% dividend yield. The stock appears undervalued based on the recovery in the downstream operations and the outlook for next year. Suncor traded for $44 per share before the pandemic at a time when the price of oil was much lower than it is today.

Canadian Natural Resources

CNRL arguably owns the best portfolio of oil and gas assets in the Canadian energy sector. The company has oil sands, conventional heavy oil, conventional light oil, offshore oil, natural as and gas liquids production facilities. CNRL is the sole owner of its assets in most cases, so it has the flexibility to shift capital around quickly to take advantage of changes in commodity prices.

The company is best known as an oil play, but CNRL is a major producer of natural gas, as well, and owns significant land positions in key natural gas basins. The future of natural gas looks positive as the world moves to transition to renewable energy. Natural gas emits less carbon dioxide than oil or coal when burned to produce electricity. As a result, many countries are shifting to natural gas as they ramp up investment in solar, wind, and geothermal power production.

While renewable energy sources will eventually be the main suppliers of power, countries are realizing that complementary fuel-fired power will still be needed to meet demand surges or to cover times when the wind drops and the sun gets blocked by clouds.

Canadian Natural Resources is a profit machine in the current market conditions. The board didn’t cut the dividend in 2020. It then raised the payout by 11% in 2021 and just announced a 25% dividend hike for 2022.

CNRL is a dividend-growth star with a compound annual dividend growth rate of 20%.

The stock trades near $52 per share at the time of writing compared to the 2021 high of around $55. Investors can pick up a 4.5% dividend yield.

Is Suncor or CNQ a better stock to buy today?

Suncor and CNRL are both top energy stocks paying attractive dividends that should continue to grow in the coming years.

Oil and gas bulls might want to split a new investment between the two stocks on additional market weakness. If you only buy one, I would make Suncor the first choice today, The stock appears undervalued right now and offers a better dividend yield.

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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Andrew Walker owns shares of Suncor and Canadian Natural Resources.

More on Investing

Silver coins fall into a piggy bank.
Tech Stocks

How to Turn a $500 TFSA or RRSP Into $50,000

Are you looking to convert a $500 TFSA into $50,000? A little discipline and patience can help you achieve it.…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

5 Things to Know About Cannabis Stocks Before 2023

Cannabis stocks like Canopy Growth (TSX:WEED) are struggling, but there are positives to draw on as well.

Read more »

Stocks for Beginners

3 Best-in-Class Stocks to Build Long-Term Wealth

Looking for stocks that might create generational wealth over the long term? Here's a top growth, value, and income stock…

Read more »

TFSA and coins
Dividend Stocks

TFSA Couples: How to Invest for $777 of Passive Income Each Month

The TFSA or Tax-Free Savings Account can be used to buy and hold a portfolio of blue chip dividend stocks…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Investing in the Stock Market Could Turn Your $1,000 Into $100,000: Here’s How

The stock market can convert a $1,000 regular investment into $100,000 without making too risky bets. Here’s a simple strategy…

Read more »

Bank Stocks

3 Top Stocks to Buy Now in a Once-in-a-Decade Opportunity

Given their discounted stock prices, these three quality stocks offer a once-in-a-decade buying opportunity.

Read more »

Various Canadian dollars in gray pants pocket
Stocks for Beginners

Here’s an Absolutely Brilliant Way to Earn Passive Income

Here’s a simple and unique way to earn passive income that does not involve working more, buying a property, or…

Read more »

Make a choice, path to success, sign
Stocks for Beginners

Canadian Investors: 2 Once-in-a-Generation Buying Opportunities

You can grab these two once-in-a-generation buying opportunities in Canada right now to get super rich in the long term.

Read more »