Three years can turn a rather ordinary 2.7% yield into more than $7.50 per share of cash. Add a higher share price and reinvested dividends, and the supposedly boring part of an energy investment could become surprisingly productive.
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Foggy future
The difficult part is estimating that future price without consulting a crystal ball wearing a tiny business suit. A stock’s return comes from dividends, earnings growth, and changes in valuation. Commodity producers add another moving part because oil prices can overwhelm even excellent operating results.
Dividends provide the most visible portion. A company paying $2.40 annually would distribute $7.20 over three years if the payment remained flat. If that dividend increased 5% annually, the total would reach approximately $7.57. Reinvestment could produce slightly more by purchasing additional shares along the way.
Share repurchases can help, too. When a company buys back stock, future earnings and dividends are spread across fewer shares. That combination has become central to the outlook for one of Canada’s most-searched energy investments.
SU
Suncor Energy (TSX: SU) produces oil sands crude, operates offshore projects, upgrades bitumen, refines fuel, and sells petroleum products through Petro-Canada. That integrated structure allows stronger refining margins to soften some of the pain when crude prices weaken.
The business is entering these three years from a position of considerable strength. First-quarter adjusted funds from operations (AFFO) reached $4 billion, while free funds flow totalled $2.9 billion. Suncor stock paid slightly more than $700 million in dividends, meaning the payment consumed roughly one-quarter of free funds flow.
Management’s 2028 plan offers the larger catalyst. Suncor stock is targeting another $2 billion of annual free-funds-flow improvement at US$65 West Texas Intermediate (WTI) oil, along with a reduction in its corporate break-even price to US$38 per barrel.
The company also expects to repurchase nearly $4 billion of stock during 2026. Those buybacks won’t arrive in an investor’s account like a dividend, unfortunately. They could still increase free cash flow per remaining shares and make future dividend raises easier to fund.
Looking ahead
At a recent price of $89.84, Suncor’s $0.60 quarterly dividend provides a 2.7% yield. The shares trade around 17 times trailing earnings, which is no longer an obvious bargain after their powerful climb.
Assuming the dividend grows 5% annually, here’s what an investment of $7,000 over the next three years could look like if shares see the same compound annual growth rate (CAGR) of the last five years, alongside the dividend.
| YEAR | ANNUAL CONTRIBUTION | CUMULATIVE CONTRIBUTIONS | PROJECTED YEAR-END SHARE PRICE | PROJECTED ANNUAL DIVIDEND PER SHARE | SHARES BOUGHT | DIVIDEND INCOME | SHARES BOUGHT THROUGH REINVESTMENT | TOTAL SHARES | CASH CARRIED FORWARD | PROJECTED TOTAL VALUE |
|---|---|---|---|---|---|---|---|---|---|---|
| 1 | $7,000.00 | $7,000.00 | $119.24 | $2.40 | 76 | $182.40 | 2 | 78 | $27.92 | $9,328.49 |
| 2 | $7,000.00 | $14,000.00 | $156.24 | $2.96 | 58 | $402.66 | 3 | 139 | $46.06 | $21,763.20 |
| 3 | $7,000.00 | $21,000.00 | $204.72 | $3.65 | 44 | $668.40 | 4 | 187 | $21.09 | $38,303.80 |
| TOTAL | $21,000.00 | $21,000.00 | — | — | 178 | $1,253.46 | 9 | 187 | $21.09 | $38,303.80 |
The base case here, then, is that it requires management to deliver much of its cash-flow plan while oil prices remain supportive, rather than repeating the extraordinary conditions that occasionally make energy investors feel like financial geniuses.
Foolish takeaway
Weak oil prices, narrower refining margins, operational outages, higher costs, or slower project execution could push the stock toward the bearish scenario. Dividends also aren’t guaranteed, despite their current coverage.
Suncor stock, therefore, belongs beside other Canadian dividend stocks, not alone steering the entire portfolio. Investors considering buying stocks in Canada may prefer gradual purchases after the rally. If Suncor stock delivers its 2028 targets, those next three years of dividends could accompany steadily improving cash flow and a share price finally settling above $100.
