Indeed, there are still plenty of high-yield dividend stocks that can be bought and held in a range of accounts for the very long term. No one’s going to live forever, but finding stocks that one can buy and hold for a few decades is key to building a sustainable long-term investment portfolio. When looking at many of the stocks in the market right now, I find it hard to make the argument that some may be around in five year’s time, let alone a few decades down the road.
That said, Suncor (TSX:SU) is one top Canadian energy stock that I think fits the bill of a “buy-and-hold” stock for an investor with a time horizon of a decade or two. This Canadian energy giant remains important to the energy independence movement in North America and is well-positioned to continue to benefit from long-term trends such as population growth over time.
Here’s why Suncor looks like a top buy-and-hold pick in my books and why this stock is one investors may want to consider adding or doubling down on during future potential dips.
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A sustainable business model
The energy sector is highly cyclical, as many investors are well aware. However, Suncor’s ability to not only withstand various commodity price cycles in this sector but also come out of these cycles better than ever is notable.
Suncor is a fully integrated energy company focused on providing crude oil (mainly from the company’s oil sands operations in Western Canada), synthetic crude and natural gas, as well as refining and other marketing-related activities with respect to its energy production initiatives.
The company’s ability to provide consistent output growth and higher relative oil prices in recent years has led to solid earnings growth, which the company has continued to pass on to investors in the form of rising dividends. Currently providing investors with a dividend yield of 4%, I’d make the argument that this stock is a bond proxy investors should consider for its relative growth potential (seen in the stock chart above).
Strong financials indicate future dividend hikes are likely
In order for any company to provide investors with consistent dividend growth, a pathway toward stable and growing earnings ought to be present. In this regard, I think Suncor is among the top energy stocks to consider at this point in the market cycle.
The company has provided relatively consistent earnings growth, coming in around 3% year over year, leading analysts to provide a consensus buy target on the stock and a price target of around 20% above current levels. With a price-to-earnings ratio of around nine times (a discount of roughly 15% compared to sector peers) and strong net debt reductions of around $500 million this past quarter, the company is both improving the quality of its balance sheet and providing bottom-line growth simultaneously. This should be a recipe for continued upside in the stock, given that one of the big knocks against Suncor in the past has been the quality of its balance sheet.
Can this stock provide long-term gains?
It’s becoming increasingly clear that many investors are starting to catch on to Suncor’s growth potential as well as its balance sheet improvements as a key reason to buy and hold this stock at current levels. Indeed, at the company’s current valuation, significant oil price declines are already being factored into Suncor stock. Thus, I’d argue that at current levels, there’s a substantial margin of safety built into this undervalued dividend stock right now.
For those seeking passive income of around 4% per year moving forward, Suncor does look like a better option to me than many fixed-income securities out there. That’s because while bond yields are heading lower in Canada, that’s not the case throughout many parts of the world (including the U.S.). And with the Canadian dollar/U.S. dollar differential remaining an issue for many companies, a weaker Canadian dollar should benefit Suncor to a greater degree than other companies over the medium term.
In my view, Suncor remains a top pick in this environment for those with a near-, medium-, or long-term outlook. This is a top dividend stock I’d consider on any significant pullbacks moving forward.
