Better Buy: Suncor Stock vs. Exxon Mobil

Oil giants such as Exxon Mobil and Suncor offer investors a tasty dividend yield today. But which energy stock is a better buy?

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After reporting record profits in 2022, several energy stocks have pulled back in the last 15 months due to falling oil prices and a sluggish global economy. But the pullback has also increased the dividend yield for energy stocks, making them attractive for income investors.

Two such energy stocks that offer investors a tasty yield in 2024 include Exxon Mobil (NYSE:XOM) and Suncor (TSX:SU). Let’s see which dividend-paying energy stock is a better buy today.

Exxon Mobil has a yield of 3.7%

Valued at US$410 billion by market cap, Exxon Mobil is among the largest companies in the world. It is engaged in the exploration and production of crude oil and natural gas in the U.S. and other international markets.

Exxon plans to close its big-ticket acquisition of Pioneer Natural Resources in the second quarter (Q2) of 2024. The acquisition is valued at $59.5 billion and will boost Exxon’s production in the Permian Basin. The deal will enhance Exxon’s already robust upstream portfolio, as it also produces in offshore Guyana.

Despite lower oil prices in 2023, Exxon Mobil earned US$36.1 billion in free cash flow and paid shareholders US$14.9 billion in dividends. It repurchased shares worth US$17.4 billion while lowering balance sheet debt by more than US$3 billion.

Exxon Mobil pays shareholders an annual dividend of US$3.80 per share, translating to a yield of 3.7%. While Exxon Mobil is part of a cyclical sector, it has raised dividends by 6.9% annually in the last 20 years. Moreover, it has increased payouts each year for 41 consecutive years.

Exxon has a well-capitalized balance sheet. It ended 2022 with US$29.7 billion in cash and increased the balance by US$1.9 billion in the last 12 months. In addition to dividends, buybacks, and acquisitions, Exxon has sold assets worth US$4.1 billion and spent US$23.4 billion in capital expenditures last year, which should drive future cash flows higher.

Priced at 11.9 times forward earnings, XOM stock is not very expensive and trades at a discount of 20% to consensus price target estimates.

Is Suncor Energy stock a good buy today?

Valued at $56 billion by market cap, Suncor Energy offers you a forward yield of 5%. It pays shareholders an annual dividend of $2.18 per share, and these payouts have more than doubled in the last decade, despite Suncor slashing its dividends by 55% during the onset of COVID-19.

Suncor generated $3.6 billion in adjusted funds from operations and returned $1 billion to shareholders in Q3 of 2023.

The company released its 2024 corporate guidance, which includes annual upstream production of 770,000-810,000 barrels per day and refining utilization of 92% to 96%. Its production increase reflects strong existing asset performance and a 100% ownership of Fort Hills, in addition to changes in its exploration and production portfolio.

Priced at 8.4 times forward earnings, Suncor stock is really cheap and trades at a discount of 18.6% to consensus price target estimates.

The Foolish takeaway

While Suncor Energy stock has a higher dividend yield compared to Exxon Mobil, I’m bullish on the latter due to its impressive dividend history and strong balance sheet.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Pioneer Natural Resources. The Motley Fool has a disclosure policy.

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