The Toronto Stock Exchange (TSX) is home to many “Dividend Warriors” — stocks with high yields and rising payouts. Many of these stocks are found in sectors like energy, utilities and financials. The TSX index as a whole has just a 2.8% yield, but dividend warriors yield over 4%. In this article, I will explore one dividend warrior stock that yields 4.65% at today’s prices and whose payout has been rising for years.
Suncor Energy
Suncor Energy (TSX:SU) is a Canadian energy company whose shares yield 4.65% at today’s price. The stock’s dividend is $0.54 and is paid quarterly.
What Suncor does
Suncor Energy is an integrated energy company, meaning that it is involved in all parts of the global oil and gas business. The company’s main business activity is extracting and selling crude oil. It also operates oil refineries, trades natural gas, and operates the Petro-Canada gas station chain. Suncor’s involvement in natural gas, refining, and gas stations makes it somewhat less sensitive to oil prices than pure-play exploration and production (E&P) companies. So, it’s an operationally diversified company that can perform well in many different market conditions.
Performance
Suncor Energy has been doing well as a business lately. Over the last five years, it has compounded its revenue, earnings and free cash flow at the following rates:
- Revenue: 6.6%.
- Earnings before interest, taxes, depreciation, and amortization: 24%.
- Free cash flow: 47%.
These are pretty excellent growth rates. The trailing 12-month rates weren’t as good as the five-year ones because oil prices dipped considerably recently. However, as I’ll show in a later section, the foundations for a healthy oil and gas market remain in place.
As for profitability, Suncor is doing well, even in today’s relatively sluggish oil market. Notably, it boasts the following profitability metrics:
- Gross profit margin: 59%.
- Net income margin: 12%.
- Free cash flow margin: 16%.
- Return on equity: 14%.
So, Suncor is pretty profitable, and it will become more profitable if oil prices rise. That’s a good quality for a Dividend Warrior stock to have: it suggests that the dividend growth will continue.
Oil prices
Speaking of oil prices, we should take a close look at those.
Oil prices are comparatively low right now, with West Texas Intermediate crude trading at US$62 per barrel. However, prices will likely rise if Donald Trump backs off with his tariff threats. Trump’s tariffs were the likely cause of the recent oil price dip. If Trump goes ahead with tariffing most of the world’s countries at steep rates, then the global economy will likely contract, causing oil consumption to fall. However, Trump has been mostly backing off on his tariff threats lately, and OPEC has not been hiking oil output much, if at all. So, the foundations for a healthy oil market are in place.
Valuation
Last but not least, Suncor Energy stock is pretty cheap, trading at 9.3 times earnings, 1.2 times sales, and 1.4 times book value. These multiples suggest that Suncor will pay investors off in a relatively short timeframe if oil prices hold up well.
Foolish takeaway on dividend warriors
The bottom line on Dividend Warriors like Suncor is that they are some of the highest-yielding and most reliable stocks on the TSX index today. With an investment in Suncor or any other dividend warrior, you will likely do well.
