A Dividend Giant I’d Buy Over Suncor Energy Stock

Suncor Energy stock has crushed the broader markets in the last 20 years. But this TSX energy stock has beaten Suncor by a wide margin.

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Canadian oil stocks have generated significant shareholder wealth in the last two decades. For instance, one of the largest oil and gas companies in Canada is Suncor Energy (TSX:SU). Valued at a market cap of $70 billion, Suncor Energy has returned 236% to shareholders in the past two decades. However, after adjusting for dividends, cumulative returns are much higher at 441%. Comparatively, the TSX index has returned less than 410% to investors since May 2004.

Despite these outsized gains, Suncor Energy offers shareholders a tasty dividend yield of 4%, given its annual payout of $2.18 per share.

How did Suncor Energy perform in Q1 of 2024?

Suncor Energy’s upstream production rose by 13% to 835,000 barrels per day in the first quarter (Q1) of 2024. It ended Q1 with adjusted funds from operations of $2.46 per share, while adjusted operating earnings stood at $1.8 billion or $1.41 per share.

The energy giant returned $1 billion to shareholders, including $700 million in dividends. Its operating cash flows allowed Suncor to reduce its net debt by $200 million, as it reported a net debt of $13.5 billion in the March quarter.

Bay Street expects Suncor Energy to report adjusted earnings of $5.51 per share in 2024, up from $5.1 per share in 2023. So, priced at 9.6 times forward earnings, Suncor stock is quite cheap and trades at a marginal discount to consensus price target estimates.

Is CNQ stock a good buy in 2024?

While Suncor Energy has delivered market-beating returns to shareholders in the past, another energy stock that has crushed the TSX index is Canadian Natural Resources (TSX:CNQ). Since May 2004, CNQ stock has returned a monstrous 1,790% to shareholders after accounting for dividend reinvestments. Similar to Suncor, CNQ also offers shareholders a high dividend yield of 3.8% and trades at a compelling valuation.

In Q1 of 2024, Canadian Natural Resources reported adjusted funds flow of $3.1 billion and net earnings of $1.5 billion. It paid shareholders $1.1 billion in dividends and $600 million via buybacks, indicating a payout ratio of less than 50%.

A low payout ratio allows CNQ to reduce balance sheet debt, invest in accretive acquisitions, and allocate funds to organic growth projects. CNQ ended 2023 with a net debt of $10 billion and now aims to distribute 100% of free cash flow to shareholders in 2024.

CNQ increased its quarterly dividend by 5% to $1.05 per share. In the last 24 years, these payouts have risen by more than 20% annually, showcasing the resiliency of its cash flows.

The TSX behemoth ended Q1 with a debt-to-earnings before interest, tax, depreciation, and amortization ratio of 0.6 times, which is quite good. CNQ’s liquidity position is also robust, with reserves of $6.8 billion at the end of Q1.

Despite its outsized gains, CNQ stock trades at 14 times forward earnings, which is reasonable, given analysts expect earnings to improve from $7.47 per share in 2024 to $9.18 per share in 2025. Analysts remain bullish and expect CNQ stock to gain over 6% in the next 12 months.

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 Canadian Natural Resources. The Motley Fool has a disclosure policy.

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