The volatility of energy stocks can understandably scare investors away. While this is understandable, there is a lot more to these stocks than volatility. More than ever, energy companies are creating value and cleaning up their operations as they head into the future. This is what has enabled Suncor Energy Inc. (TSX:SU) to provide investors with a generous dividend yield of 4.1% today.
Should we buy Suncor Energy stock for this dividend?
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Suncor’s turnaround
A few years ago, Suncor was in the headlines. But not in a good way. You see, the company was struggling with safety concerns, accidents, operational inefficiencies, and all-around sub-optimal performance.
A new CEO and an internal shake-up followed. After hitting lows of approximately $15 back in 2020, Suncor’s stock is currently trading at more than $55. This represents an increase of almost 270%. Moreover, Suncor’s dividend has been on the rise. In fact, Suncor’s dividend has increased 170% in the last five years, which is equivalent to a compound annual growth rate (CAGR) of 22%.
Driving steady cash flows
Suncor’s business is comprised of a downstream segment (refining) as well as an upstream segment (exploration and production). This diversification provides Suncor with the benefit of more predictable and steady cash flows, with each segment driven by slightly different variables.
In the five years ended 2024, Suncor’s operating cash flow increased 500% to $15.9 billion. In the first half of 2025, this robust performance continued, with $5 billion in operating cash flow.
This is a key characteristic of the business – more stable and resilient cash flows. And Suncor’s management has committed to the return of these cash flows to shareholders. In Suncor’s most recent quarter, nearly $1.5 billion was returned to shareholders through dividends and share buybacks. It is just this type of business that’s very conducive to steady, reliable dividends.
Beating expectations
Suncor has come out of the hard times by developing a new focus and a new culture. The results of this? Record production, record refinery utilization, and lower operating costs, to name just a few.
Of course, this has also come hand-in-hand with strong bottom line results that have been beating expectations for many quarters now. In 2024, Suncor posted earnings per share (EPS) of $5.40, 6% higher than the prior year.
Finally, Suncor has been generating strong returns as a result of the company’s focus on value creation, debt reduction, and operating efficiencies. For example, Suncor’s return on equity (ROE) currently stands at 12.7%. ROE is a measure of how efficiently a company uses shareholders’ money to generate profit. So, this means that for every $1 of common equity, Suncor generates $12.70 of net income.
The bottom line
While Suncor is an energy company that can be subject to volatility due to the nature of a commodity business, the company has taken steps to improve the quality and quantity of its earnings and cash flows. This is resulting in greater value creation, greater efficiencies, and greater shareholder returns. Therefore, I would definitely buy Suncor Energy stock for its high-quality dividend.
