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Should You Consider Suncor: Insights for Investors

Published 2024-04-14, 09:04 p/m
© Reuters.  Should You Consider Suncor: Insights for Investors
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Kalkine Media - Suncor Energy (TSX:SU) (TSX: SU) is a prominent dividend stock in Canada, currently offering shareholders an annual dividend of $2.18 per share, equating to a forward yield of 4.1%. With a market capitalization of $68 billion, Suncor is among the largest energy companies in the country, operating across various segments including oil sands, exploration and production, and refining and marketing. This solidifies Suncor's position among the top TSX energy stocks, presenting investors with an opportunity to benefit from the company's diversified operations and attractive dividend yield.

Over the past 20 years, Suncor Energy has provided shareholders with a return of 206%, which increases to 393% when factoring in dividends. In comparison, the TSX index has delivered a return of 362% to shareholders, adjusted for dividends, since April 2004.

Looking at its performance in 2023, Suncor Energy saw strong performance in its upstream assets, achieving a record upgraded utilization of 92%, driven by robust performance in the second half of the year. Its integrated oil sands operations demonstrated operational flexibility through interconnected pipelines. Additionally, downstream operations performed well, with annual refining utilization reaching 90%.

Suncor also announced a partnership with Canadian Tire (TSX:CTCa) in its retail business, leading to a 15% increase in retail fuel sales and expanding the presence of Petro-Canada branded stations across Canada.

Financially, Suncor reported adjusted funds from operations of $13.3 billion in 2023, deploying $5.57 billion towards capital expenditures and generating free cash flow of $7.73 billion. Despite paying $2.74 billion in total dividends to shareholders, the company maintained a low payout ratio of less than 40%, providing flexibility for further dividend increases, growth investments, acquisitions, and debt reduction.

To optimize costs, Suncor reduced above-field costs by $450 million through workforce reductions in 2023. In 2024, it aims to lower operating costs by adding 55 ultra-class 400-tonne trucks to its mining fleet, replacing less efficient vehicles and generating significant cost savings.

Furthermore, Suncor completed the sale of non-core assets, including its U.K. North Sea (NYSE:SE) upstream assets and renewable power business, for $1.8 billion, enabling the acquisition of remaining working interests in Fort Hills for $2.2 billion. Full ownership of Fort Hills enhances regional synergies and decision-making.

In 2024, Suncor stock experienced a 20% surge attributed to higher commodity prices. Given its low forward earnings multiple of 10.5 times, Suncor stock appears attractively priced, especially if oil prices remain elevated. Consequently, investing in Suncor Energy stock is deemed suitable for income-seeking investors anticipating momentum in oil prices throughout 2024.

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