Expensive oil has an irritating ability to reach into two pockets at once. First comes the petrol station, then comes the possibility that higher energy inflation keeps borrowing costs elevated for longer.
The Bank of Canada held its policy rate at 2.25% in September, while elevated energy prices remain one of the risks to the inflation outlook. That doesn’t mean higher oil guarantees another rate hike. Yet it does mean I wouldn’t build an investment plan that requires cheaper money next month. I’d rather own something currently generating cash.
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Get paid by the problem
Energy producers can benefit when realized oil prices rise. Yet a higher barrel price doesn’t travel directly to shareholders. Royalties rise, operating costs continue, taxes get paid and companies still need to invest in their assets.
What remains can fund dividends, debt reduction or share repurchases. That’s why I’d rather focus on per-share cash generation than celebrate another oil headline. For a $10,000 long-term allocation, Suncor Energy (TSX: SU) still deserves consideration among Canadian dividend stocks.
Two sides of oil
The key here is that Suncor is integrated. It produces oil and refines it, and sells fuel through businesses including Petro-Canada. That gives the company exposure to crude prices and refining margins rather than relying on just one link in the chain.
Second-quarter adjusted funds from operations reached $5.3 billion. Management then increased planned share repurchases to $500 million per month beginning in August. That’s where strong oil prices can create something more permanent.
Repurchasing shares reduces the number of claims on future earnings, provided management doesn’t wildly overpay. At different prices, that same $500 million buys very different amounts of Suncor. A cheaper stock lets the same cash retire more shares, so buybacks become considerably less exciting when everyone is excited.
What $10,000 buys
Suncor pays $0.60 quarterly, or $2.40 annually. At $98.09, $10,000 would buy 101 whole shares.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| SU | $98.09 | 101 | $2.40 | $242.40 | Quarterly | $9,907.09 |
The yield is only around 2.4%, so this isn’t primarily an income trade. I’d be buying Suncor for cash flow, buybacks and the possibility that fewer shares translate into greater earnings per share over time. A $10,000 purchase inside a Tax-Free Savings Account (TFSA) requires enough contribution room beyond the 2026 annual $7,000 limit.
Bottom line
Lower crude prices, weaker refining margins or operational outages can reduce cash flow just as quickly as they improved it. That makes position sizing important after a large commodity rally. I’d buy in stages rather than treat US$100 oil as evidence the stock can’t get cheaper.
Higher oil prices might complicate the path to lower interest rates. Suncor gives investors a way to own the cash-generation side of that problem instead of simply paying more at the pump.
If management keeps using excess cash to retire shares at sensible prices, today’s expensive oil could improve tomorrow’s per-share results. That’s what would keep me invested long after the next Bank of Canada decision.
