Surging Crude Prices: Is Suncor Energy’s Dividend About to Get Even Bigger?

Here are a few factors to consider when long-term investors think about the viability and sustainability of Suncor’s (TSX:SU) dividend.

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As global crude prices continue to soar, investors are increasingly looking towards energy stocks in order to book profits. In this regard, several of them are optimistic about Suncor Energy (TSX:SU). This is because, apart from being Canada’s second-biggest oil producer, it is also a dividend stock, which can provide sustainable passive income. 

So, should investors load up on this stock? Here are some factors which can help them decide. 

Suncor surpasses market estimates in its Q2 2023 earnings

In mid-August, Suncor reported some rather impressive results for its third quarter. The company brought in quarterly revenue of $11.7 billion, which was 15% more than the market estimates. Apart from this, Suncor reported impressive earnings per share of $1.44, which exceeded estimates by 57%. The company also declared quarterly adjusted operating earnings worth $0.96 per share, handily surpassing the analyst estimates of $0.82 per share and supporting the idea that the company’s dividend is sustainable for the time being.

Now, there are several reasons behind this market-beating performance. In the second quarter (Q2) of 2023, Suncor increased its total upstream production by 3%, with the figures reaching 741,900 barrels of oil equivalent per day. The company also averaged 85% refinery utilization, and its crude throughput appreciated by 1.3%, reaching 394,400 barrels/day.

Continuation of talks on buying Fort Hills oil mine

Recent reports indicate that Suncor is still discussing with TotalEnergies about acquiring one-third of the equity stake in the Fort Hills oil mine. This deal will be finalized by the end of this year, giving the Canadian oil giant 100% control over the Alberta-based oil sands. 

This move will help the company improve its bitumen supply and create a sustainable replacement for its Base mine. Accordingly, for those bullish on Suncor’s long-term future and its ability to continue to increase production, this will be a key catalyst to watch play out in the coming quarters.

Suncor is efficiently reinvesting its profits 

As per stock analysts, Suncor has a 30% three-year median payout ratio. This entails that the company retains almost 70% of its profits. Additionally, given the company’s decent growth rate, it can be said that Suncor’s dividend payouts are well covered by its earnings. 

Apart from this, it also shows that the company is efficiently reinvesting its profits. This is something institutional investors clearly like, with data as of mid-July showing that approximately 64% of Suncor shares are under institutional investors. This is excellent news for investors as such firms usually invest in stocks after a great deal of research to identify companies with significant growth potential.

Thus, such a high level of institutional ownership in Suncor is a sign of optimism about the stock’s long-term performance. 

Bottom line

Given the above factors, Suncor has adequate growth prospects and financial strength to provide increasing returns in the long run. Thus, given the rising crude prices, there is a high chance that the company may provide an even bigger dividend in the time to come. 

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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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