Great investors, including Warren Buffett, have made millions and built fortunes through the stock market. While the GOAT (Greatest [Investors] Of All Time) of investing was financially successful with his stock holdings, he asserts that the vast majority of investors will never beat the market.
However, individual stocks can outperform the market and deliver higher returns over a more extended holding period. Canadian investors should watch dividend payer Suncor Energy (TSX:SU) today.
Buffett owned shares of Canada’s oil bellwether for nearly eight years until he sold all his stake in Q1 2021 because of the global pandemic’s impact and oil price war in 2020.
Set to dominate
Suncor Energy could dominate the TSX following its impressive operational and financial performance in Q2 2024. Analysts from TD Cowen and BMO Capital Markets upgraded the stock from buy to hold and market perform to outperform. Prospective investors can earn in two ways: price appreciation and quarterly dividends.
As of this writing, current investors enjoy a 27.7% year-to-date gain compared to the TSX’s 9.9%-plus and the energy sector’s 11.5%-plus. At $52.48 per share, the top-tier energy constituent pays an attractive 4.1% dividend. Furthermore, market analysts’ 12-month average and high price targets are between $60.93 (+13.9%) and $77 (+31.8%).
The $66.6 billion integrated energy company has recovered remarkably from its financial dislocation in 2020. Its stock has an overall return of 156.5% in three years, representing a compound annual growth rate (CAGR) of 36.8%.
Execution and momentum
Suncor Energy reported lower profit in Q2 2024 versus Q2 2023. However, its President and CEO, Rich Kruger, said the quarter was about execution and momentum. In the three months ending June 30, 2024, net earnings declined 16.6% year-over-year to $1.6 billion, while adjusted funds from operations increased 27.9% to $3.4 billion from a year ago.
According to Kruger, quality execution of major upstream and downstream activities, as well as maintaining momentum, are Suncor’s priorities. “With these clear priorities and a determination to consistently achieve the highest levels of performance, the organization delivered on its commitments: operating safely, cost-effectively, reliably, and profitably,” he said.
Also, during the quarter, free funds flow rose 29.6% to $1.4 billion versus Q2 2023, while net debt thinned 18.9% year-over-year to $9 billion. Kruger anticipates a strong second half, as Suncor has already completed most of this year’s planned maintenance.
Investment takeaways
Suncor expects full-year capital expenditures to reach between $6.3 billion and $6.5 billion and total upstream production of 770,000 to 810,000 thousand barrels per day (kbpd).
The Canadian oil giant stands on solid ground owing to competitively advantaged assets, long oil sands reserve life (26 years), and regional/vertical integration (Petro Canada). In Q2 2024, refined product sales climbed to a record 594,700 barrels per day, an 8.7% increase from Q2 2023.
Dominance is on the horizon for this Canadian stock for three compelling reasons: integrated oil sands assets footprint, strong cash returns, and resilient balance sheet. Lastly, management commits to deliver 3% to 5% dividend growth on top of capital appreciation.
