Suncor Energy (TSX:SU) and Cenvous Energy (TSX:CVE) are two of Canada’s largest integrated energy producers. Both have similar portfolios of oil sand/heavy oil production facilities as well as downstream refinery capacity.
Despite some similarities, these top energy stocks also have variances in their operations/size, valuation, dividends, and record of returns. Here’s a discussion of what stock is a better buy today.
Suncor has a market capitalization of $59 billion. It operates in situ production plants, oil sands mines, offshore rigs, four refineries, and a network of fuel wholesale/retail outlets across Canada and the U.S.
It produces around 750,000 barrels of oil equivalent per day (BOE/d). It refines around 550,000 barrels per day. Its oil sand operations have around 26 years of reserve life left.
While this diverse mix has its benefits, Suncor has been racked with safety and operational issues. As a result, it has consistently underperformed expectations over the past few years.
Its mines and production plants are older. Consequently, it is looking to backstop its energy reserves through acquisitions. However, to date, it has been unsuccessful in acquiring the right asset.
Cenovus has a market cap of $52 billion, putting it just slightly smaller than Suncor. Most of its energy production comes from oil sands, but 25% comes from conventional and offshore resources.
In 2023, it expects to produce around 785,000 BOE/d and refine 745,000 barrels per day. It has 31 years of energy reserves left.
Cenovus has not been without challenges. One of its refineries had a fire, and it has taken longer than expected to come back online. It is up and running today, so that should be a tailwind that can help propel earnings into the back half of the year.
Valuation and balance sheet
Suncor stock trades with a price-to-earnings (P/E) ratio of 8.65 and a price-to-free cash flow (P/FCF) of eight. It trades with a free cash flow yield of 12%. Suncor currently sits with $14 billion of net debt, which is actually up from $13.6 billion in the second quarter (Q2) of 2022.
Cenovus trades on par to slightly cheaper than Suncor. It has a P/E ratio of 13.76 and a P/FCF of 7.4 times. It trades with a free cash flow yield of 13.6% today. Cenovus sits with $6.4 billion of net debt, which is down from $7.5 billion in Q2 2022.
The dividend is one of the significant differences between these two stocks. Suncor stock yields 4.5%, whereas Cenovus is less than half that at only 2%.
Since 2021, Suncor has grown its quarterly dividend by 150% to $0.52 per share today. Since 2021, Cenovus has increased its dividend by 700% to $0.14 per share today.
Mind you, Cenovus’s dividend was at a fairly low base. However, it has been growing significantly faster. This doesn’t factor in the $0.11 per share special dividend it also paid last year. Suncor has paid no special dividends since 2021.
Record of returns: Suncor or Cenovus stock?
Over the past three and five years, Suncor stock has delivered a respective total return (including dividends) of 186% and 9%. However, Cenvous has earned shareholders a total return of 338% and 138%, respectively.
While Suncor is the better-known name in Canadian energy, Cenovus has significantly outperformed in the short and long-term. It has been more thoughtful about capital allocation and balance sheet management.
Likewise, it has been able to generate free cash flow more significantly. That has translated into a faster pace of share buybacks, dividend growth, and total overall returns. For a better company operationally and financially, Cenovus is likely the better bet today.