Kalkine Media - When considering dividend stocks on the TSX, Suncor (TSX:SU) emerges as a prominent energy giant with an attractive valuation and a tempting dividend yield. However, is it the optimal choice compared to other options like TSX Blue Chip Stock Magna International?
Suncor, with a market cap of $66 billion, has delivered significant returns to long-term investors, boasting a 191% return since April 2004. Adjusted for dividends, its total returns soar to nearly 368%, outpacing the TSX index's 356% return over the same period. Despite this impressive performance, Suncor stock still offers a forward yield of 4.2%, backed by an annual dividend payout of $2.18 per share.
But is TSX:SU undervalued? As a Canada-based integrated energy company, Suncor's operations encompass oil sands development, offshore oil production, petroleum refining, and ownership of Petro Canada, a retail and wholesale distribution network. Despite encountering macroeconomic challenges, Suncor reported adjusted funds from operations of $13.3 billion in 2023, facilitating substantial returns to shareholders through dividends and buybacks.
Suncor's strategic moves include asset sales totaling $1.8 billion and the acquisition of the remaining interest in Fort Hills for $2.2 billion. Ending 2023 with a net debt of $13.67 billion, slightly up year-over-year, Suncor remains well capitalized, generating sufficient cash flows to service debts, reinvest in capital projects, and pursue strategic acquisitions. However, being part of the cyclical energy sector, Suncor remains vulnerable to fluctuations in oil prices, which surged nearly 25% in 2024 but could face downside risks in a slower global economy.
Trading at 10 times forward earnings, Suncor stock appears attractively priced, though it currently trades below consensus price target estimates.
Now, let's shift our attention to Magna International (TSX:MG) (TSX:MG). Valued at $19.7 billion by market cap, Magna pays shareholders an annual dividend of $2.56 per share, equating to a forward yield of 3.7%. As an ancillary automobile company, Magna supplies systems and components to major original equipment manufacturers globally, with its operating results closely tied to car and light truck production levels, primarily in North America, Europe, and China.
In 2023, Magna reported revenue of $42.8 billion, a 13% increase year-over-year, buoyed by a global rise of 8% in light vehicle production. Enhanced sales and margins contributed to Magna International's adjusted earnings before interest and tax, which climbed to $2.2 billion, up from $1.7 billion in the previous year. The company's focus on operational excellence, cost initiatives, and productivity improvements has yielded positive results.
Magna International, consistent with its track record, paid dividends of $522 million in 2023 and raised the payout by 3% to $0.475 per share in Q4, marking its 14th consecutive year of dividend increases.
With a valuation at eight times forward earnings, Magna stock is currently trading 28% below consensus price target estimates.
In conclusion, both Suncor and Magna offer compelling investment opportunities on the TSX, each with its unique strengths and considerations. While Suncor presents a higher dividend yield and attractive valuation in the energy sector, Magna International boasts stability and growth potential within the automotive industry.