Suncor (TSX:SU) is up 14% in the past month. Investors who missed the bounce are wondering if SU stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and total returns.
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Suncor share price
Suncor trades near $55.50 at the time of writing. The stock bounced around between $45 and $58 for most of the past year, with several surges of more than 10% followed by subsequent pullbacks of the same magnitude. Savvy traders would have made some good money on this stock over the last 12 months.
Suncor fell out of favour with investors after the pandemic when the company slashed the dividend in the early weeks of the crisis to preserve cash. The board eventually raised the dividend back to its previous level, and beyond, as oil markets recovered. A change of management at the CEO level, however, was still needed to attract investors back to the stock.
In the past two years, Suncor has made good progress on its turnaround plan. The company reduced staff, cut operating expenses, and improved safety. The business as a whole has become more efficient. In fact, Suncor reported record quarterly production, refining throughput, and retail product sales in the first quarter (Q1) 2025.
Suncor’s integrated business structure was the reason the stock used to be a darling among energy investors. Suncor is known for its oil sands operations, but it also has four refineries and operates the Petro-Canada network of retail locations across the country. When oil prices fall, crude input costs decline for the refinery, which means it can potentially earn better margins on the finished product. Sales at gas stations also tend to do well when gasoline prices fall, as people tend to take more trips and spend more on other items in the store.
With oil prices under pressure over the past year, and recently becoming volatile again, Suncor’s businesses across the full value chain should make it more stable than the pure-play oil producers.
Suncor earnings
Suncor generated net earnings of $1.69 billion in Q1 2025 compared to $1.61 billion in the same period last year. Net debt dropped to $7.56 billion from $9.55 billion. Now that net debt is below Suncor’s $8 billion target, the company plans to return 100% of excess cash to shareholders through buybacks.
Suncor already raised the dividend by 5% for 2025 when it announced the Q4 2024 results earlier in the year.
Outlook
The recent spike in oil prices is due to geopolitical threats. The risk of a wider conflict in the Middle East has oil traders worrying about supply shocks. Iran could potentially close the Strait of Hormuz, which is a narrow waterway between Iran and Oman where at least 20% of the oil supply passes on route to international markets. Analysts have varying opinions on how high the price of oil would go in this situation, but a jump to US$100 per barrel, or higher, is not out of the question.
On the fundamentals side, the analyst community is more cautious. Supply growth in non-OPEC countries, including the U.S. and Canada, and higher output from some OPEC quota cheaters have put the market in a surplus position amid tepid demand from China. Tariffs could push the U.S. economy into a recession and deepen the slump in China. The two countries are the world’s largest users of oil, so an economic downturn would put pressure on demand. Assuming the geopolitical tensions ease in the coming weeks or months, oil prices could give back their recent gains by the end of the year.
In Canada, any new pipeline capacity that gets built in the next few years to give Canadian producers access to more international buyers would be positive for Suncor.
Time to buy Suncor?
Near-term volatility is expected, but oil bulls should keep Suncor on their radar. The stock currently provides a decent 4% dividend yield, so you get paid well to ride out some turbulence. Dips would be viewed as an opportunity to add to the position.
