Is Suncor Stock a Buy for Its 4% Dividend Yield?

Suncor Energy is a high dividend stock that offers you a yield of 4%. Let’s see if the TSX stock is a good buy right now?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Suncor Energy (TSX:SU) is among Canada’s most popular dividend stocks. Valued at a market cap of almost $70 billion, Suncor Energy has returned close to 5,000% to shareholders in the past 30 years after adjusting for dividend reinvestments. It means a $1,000 investment in Suncor stock in August 1994 would be worth close to $50,000 today, easily outpacing the broader market returns. Despite these outsized gains, Suncor Energy offers shareholders a dividend yield of 4%, given an annual dividend of $2.18 per share.

Created with Highcharts 11.4.3Suncor Energy PriceZoom1M3M6MYTD1Y5Y10YALL20 Aug 201420 Aug 2024Zoom ▾201520162017201820192020202120222023202420162016201820182020202020222022202420240www.fool.ca

As historical gains don’t matter much to current or future investors, let’s see if Suncor Energy can continue to outpace the TSX index in the next 10 years.

An overview of Suncor Energy

Suncor Energy is an integrated energy company that develops petroleum resource basins. It has three primary business segments, including:

  • Oil Sands: The business operates assets in the Athabasca oil sands in Alberta.
  • Exploration and Production: It consists of offshore operations off the east coast of Canada and the U.K.
  • Refining and Marketing: The business includes infrastructure that supports the marketing, supply, and risk management of refined products, crude oil, natural gas, and byproducts.

A strong performance in Q2 2024

Suncor reported adjusted operating earnings of $1.6 billion, or $1.27 per share, in Q2 of 2024, compared to $1.3 billion, or $0.96 per share in the year-ago quarter. This increase was due to higher crude oil prices, increased sales volumes from oil sands, and higher refinery production. However, higher royalties, lower exploration and production volumes, and lower refined product realizations offset this earnings growth.

Suncor’s adjusted funds from operations in Q2 stood at $3.4 billion, or $2.65 per share, compared to $2.7 billion, or $2.03 per share last year. Its operating cash flow stood at $3.8 billion, or $2.98 per share, compared to $2.8 billion, or $2.14 per share, in the same period last year.

Suncor’s widening operating cash flows allow the company to strengthen its balance sheet and reinvest in capital expenditures. In the last 12 months, its capital expenditures totalled $6.4 billion, while its free cash flow stood at $8.1 billion, or $6.68 per share. Given that Suncor pays shareholders an annual dividend of $2.18 per share, its payout ratio is less than 50%, which increases its financial flexibility significantly.

Suncor Energy ended Q2 with net debt of $9.1 billion, almost $500 million lower than Q1 2024.

Is Suncor’s dividend safe?

In the last 20 years, Suncor Energy has raised its dividends by 16% annually, enhancing the yield-at-cost in this period. While Suncor’s dividend growth is impressive, the company was forced to cut its payouts by 55% when crude oil prices fell off a cliff at the onset of the COVID-19 pandemic.

In its Q2 presentation, Suncor aims to grow its dividends between 3% and 5% annually going forward while focusing on reducing its long-term debt.

Priced at 10 times forward earnings, Suncor Energy is relatively cheap and trades at a discount of 11% compared to consensus price target estimates. If we adjust for dividends, total returns could be closer to 15%.

Should you invest $1,000 in Suncor Energy right now?

Before you buy stock in Suncor Energy, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Suncor Energy wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

grow money, wealth build
Dividend Stocks

Why I’d Invest $10,000 in This Undervalued Dividend-Growth Stock for Decades of Income

This undervalued dividend stock offers a high yield of over 8% and can help you earn more than $200 in…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Here’s Exactly How a $20,000 TFSA Could Potentially Grow to $200,000

Index funds like the iShares S&P/TSX Capped Composite Index (TSX:XIC) are tax free in a TFSA.

Read more »

Dividend Stocks

How I’d Invest $6,000 in Canadian Real Estate Stocks to Build Lasting Wealth

Canadian REITs on sale! See how grocery-anchored retail properties offering 9% yields could turn $6,000 into lasting wealth despite US…

Read more »

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

Economic Headwinds: Should You Still Consider Buying the Dip?

A market dip might seem like a bumpy road, but it can be far smoother in the future with the…

Read more »

e-commerce shopping getting a package
Dividend Stocks

Consumer Spending Plays Amidst the Current Market Dip

Consumption may go down in market dips, but certain consumer stocks are certainly better off than others.

Read more »

Asset Management
Dividend Stocks

12% Dividend Yield! I’m Buying This TSX Stock and Holding for Decades

Stocks with high-dividend yields carry risks. But they could be a good long-term investment. Here is a 12% dividend stock…

Read more »

Canadian flag
Dividend Stocks

How I’d Build a Foundation of Canadian Value Stocks in My Investment Strategy

Canadian investors can explore iShares Canadian Value Index ETF for value stock ideas to build a foundation for their diversified…

Read more »

Canadian dollars are printed
Dividend Stocks

How I’d Transform a $30,000 TFSA Into a Cash-Flow Machine

Here's why TFSA investors should consider owning dividend stocks such as Mullen Group in 2025.

Read more »