A Dividend Giant I’d Buy Over Suncor Right Now

Dividend-paying energy stocks such as Whitecap may offer higher upside potential compared to Suncor Energy.

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Suncor Energy (TSX:SU) is one of the largest companies in Canada that has delivered steady returns to shareholders in the past two decades. Valued at $63.3 billion by market cap, Suncor Energy stock has surged 168% to shareholders since March 2004. After adjusting for dividends total returns are closer to 330%. In this period, the TSX index has returned 372%.

Despite a challenging macro environment in 2023, Suncor reported adjusted funds from operations of $4 billion, or $3.12 per share. Comparatively, adjusted operating earnings stood at $1.6 billion, or $1.26 per share, allowing the company to return $1.1 billion to shareholders in the fourth quarter (Q4) of 2023, including $704 million in dividends.

In 2023, Suncor repurchased shares worth $2.2 billion, which was almost 4% of its float. It ended 2023 with a net debt of $13.7 billion, reflecting the closing of the acquisition of Total Energy Canada for $1.5 billion.

Suncor Energy stock currently pays an annual dividend of $2.18 per share, translating to a forward yield of 4.4%. These payouts have risen by 13.8% annually in the last 13 years, which is exceptional for an energy stock.

Priced at 10 times forward earnings, Suncor stock is cheap and trades at a discount of 5% to consensus price target estimates. While investing in Suncor might seem enticing due to its tasty dividend yield, here’s another TSX stock that offers you a higher payout.

Is Whitecap Resources a good stock to buy?

Valued at $6 billion by market cap, Whitecap Resources (TSX:WCP) focuses on the acquisition, development, and production of oil and gas assets in Western Canada. Whitecap emphasized the development of its high-quality drilling inventory has yielded exceptional results as it continues to improve capital efficiencies and netbacks for increased profitability.

In 2023, it generated funds flow of $1.8 billion and invested $954 million in capital expenditures. It ended the year with a free cash flow of $838 million, or $1.38 per share. Comparatively, it paid dividends worth $373 million, or $0.62 per share, indicating a payout ratio of less than 50%. A low payout ratio allows Whitecap to target acquisitions, lower balance sheet debt, and raise dividends further.

In 2024, the company has increased dividends to $0.73 per share, indicating a forward yield of 7.2%, which is very attractive. In fact, Whitecap has increased dividends for the seventh time in three years. In the last 11 years, it has paid $1.8 billion in cumulative dividends while allocating $612 million towards buybacks since 2017.

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Whitecap ended 2023 with a net debt of $1.4 billion, indicating a debt-to-EBITDA ratio of 0.7 times, which is within the company’s debt covenants. Priced at 8.9 times forward earnings, Whitecap stock is very cheap and trades at a discount of 21% to consensus price target estimates.

The Foolish takeaway

Investors can consider adding Suncor and Whitecap to their energy stocks watchlists in 2024. Both of these companies trade at a reasonable valuation and offer a tasty yield, making them attractive to income and value investors.

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 Whitecap Resources. The Motley Fool has a disclosure policy.

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