Boasting a market cap of $53 billion, Suncor Energy (TSX: SU) is one of Canada’s largest and most well-known energy stocks. With an enticing 5% dividend yield, it is a favourite for income and energy investors. Yet, over the past five years, SU stock has meaningfully underperformed the TSX Energy Index by almost 48%.
Suncor stock has been plagued by underperformance in every way
Suncor has been plagued by operational, management, and safety issues. Despite the involvement of several activist investors, it has been slow moving and challenged to turn the business in a positive direction.
Even though its yield is aligned or even higher than other Canadian energy stocks, Suncor stock’s performance has continued to lag. That has been the case even though oil prices have been relatively elevated over the past few years.
Before you consider buying Suncor for its enticing dividend, here are two high quality energy stocks I’d rather buy instead.
A large oil stock I’d buy over Suncor
Many consider Canadian Natural Resources (TSX: CNQ) as the GOAT (greatest of all time) of Canadian energy stocks. It is Canada’s largest oil producer and the second largest natural gas player. Over the past three years, CNQ stock has delivered a 229% stock return. That is versus Suncor’s meagre 67% return.
That doesn’t factor in the substantial dividend growth Canadian Natural has brought to shareholders as well. Last year, it increased its dividend twice and paid a substantial $1.50 per share special dividend.
It has a two-decade history of growing its dividend by a 20%-plus compounded annual growth rate. That is one of the best dividend-growth rates in Canada, even among energy stocks.
Already in 2023, the company has returned $4.3 billion to shareholders in the form of dividends and share buybacks. That equals a 5% free cash flow return yield, and it is only halfway through the year.
As compared to Suncor stock, CNQ has a stronger balance sheet, three decades of reserves, high-quality operating assets, and a very aligned executive team. What more can you want from a business and a stock?
A top gas stock in Canada
If CNQ is the GOAT for oil, Tourmaline Oil (TSX: TOU) is the GOAT for natural gas. Despite oil being in its name, it is Canada’s largest natural gas producer.
The combination of scale, efficient infrastructure, and excellent reserves make it a leading low-cost, highly profitable energy producer. Even though natural gas prices have tanked in 2023, Tourmaline has been able to deliver strong results because it has access to top global markets (and prices, too).
Tourmaline does not pay a large dividend like Suncor stock. It only yields 1.5% today. However, it has been the king when it comes to special dividends. It just announced another special dividend worth $1 per share. Over the past year, it has paid out $7.74 per share in total dividends. That equals a 12% trailing yield at today’s price.
Unlike Suncor, Tourmaline has essentially no net debt. Its CEO owns a large stake in the company and his incentive to produce strong returns is aligned with yours. This is a great stock for the long-term if you like energy.
The Foolish takeaway
While Suncor is a large business, it has underperformed the energy market both operationally and as a stock. Certainly, it pays an attractive dividend yield, but shareholders are likely much better off owning the GOATs of oil and gas, CNQ and/or Tourmaline.
