Suncor Energy (TSX:SU) is among the most popular dividend stocks in Canada. Currently, Suncor pays shareholders an annual dividend of $2.18 per share, indicating a forward yield of 4.1%.
Valued at $68 billion by market cap, Suncor Energy is one of the largest energy companies in the country. It operates through segments such as oil sands, exploration and production, and refining and marketing.
In the last 20 years, Suncor Energy has returned 206% to shareholders. However, after adjusting for dividends, total returns are closer to 393%. Comparatively, the TSX index has returned 362% to shareholders in dividend-adjusted gains since April 2004.
As historical returns don’t matter much for investors, let’s see if Suncor Energy stock is a buy, sell, or hold today.
How did Suncor Energy perform in 2023?
Suncor Energy’s strong upstream asset performance in the second half of 2023 drove record upgraded utilization of 92% — 3% higher than the previous record. Its strong performance showcased Suncor’s strength of its regional oil sands integration, which provides operational flexibility through interconnected pipelines.
Moreover, the downstream operations business also performed well, with an annual refining utilization of 90%. Further, Suncor announced a new partnership with Canadian Tire in its retail business. The partnership has allowed Suncor to secure a supply agreement for its refineries, resulting in a 15% increase in retail fuel sales while expanding the presence of Petro-Canada branded stations across the country.
Suncor reported adjusted funds from operations of $13.3 billion and deployed $5.57 billion toward capital expenditures. So, its free cash flow stood at $7.73 billion. Suncor paid $2.74 billion in total dividends to shareholders in 2023, indicating a payout ratio of less than 40%.
A low payout ratio provides Suncor with the flexibility to increase dividends further, reinvest in growth projects, target acquisitions, and lower debt. In the last 10 years, Suncor Energy stock has more than doubled its dividend payouts, which is exceptional for an energy stock.
A focus on cost optimization and liquidity
Similar to several other companies across sectors, Suncor Energy is focused on lowering its cost base to offset macro headwinds such as interest rate hikes and inflation. In 2023, it reduced “above-field” costs by $450 million via workforce reductions.
In 2024, Suncor aims to lower operating costs with the addition of 55 ultra-class 400-tonne trucks to its mining fleet. The trucks are expected to replace less efficient, higher-cost vehicles, generating significant cost savings in 2024 and beyond.
In the last year, Suncor completed the sale of non-core assets, including its U.K. North Sea upstream assets and its renewable power business, for $1.8 billion, which was higher than price estimates.
The sale enabled Suncor to acquire remaining working interests in Fort Hills for $2.2 billion, adding 89,000 barrels per day of bitumen production capacity. Suncor emphasized full ownership of Fort Hills allows for regional synergies and improved decision-making.
The Foolish takeaway
Suncor stock surged over 20% in 2024 due to higher commodity prices. Typically, the performance of energy stocks, including Suncor, is tied to oil prices, making them volatile.
Priced at 10.5 times forward earnings, Suncor stock is quite cheap, especially if oil prices remain elevated. Investing in Suncor Energy stock is ideal for income-seeking investors who expect oil prices to gain momentum in 2024.
