Suncor Energy (SU) Dividend Stock Analysis

SU - Suncor LogoSuncor Energy TSE:SUNYSE:SU is the largest Canadian energy company in market capitalization, in profits and in revenues. It is the owner of Petro-Canada gas station in Canada. Suncor Energy has oil producing assets in many countries in the world while having their largest reserves in the oil sands of Alberta. Their current plans see them growing their oil capacity all the way through 2020 while focusing on reducing their cost of operations and extractions where possible.

They have been generous to shareholders with a very generous dividend increase in 2013 and a $2B share buyback plan.

  • $43 B in Market Capitalization ranking 4th in Canada
  • $38 B in Revenue ranking 1st in Canada
  • $4 B in Profits ranking 4th in Canada

SU Quick Facts

  • Stock Ticker: TSE:SUNYSE:SU
  • Market Cap.: $47.40B
  • P/E: 20.11
  • Forward P/E: 9.327
  • P/B: 1.22 (Price to Book)
  • P/S: 1.18 (Price to Sale)
  • P/CF: 4.81 (Price to Cash Flow)
  • EPS: $1.56
  • Beta: 1.97
  • Liabilities to Equity Ratio: 0.95
  • Quarterly Dividends: $0.20
  • Dividend Yield: 2.55%
  • Dividend Payout Ratio: 51.28%
  • 10 Year EPS Growth Average: 25.25%
  • 10 Year Dividend Growth Average: 21.08%
  • 52-Week Low: $26.97
  • 52-Week High: $34.99
  • 52-Week Range: 54.49%

SU Dividend Growth

Suncor Energy is blue chip and a Canadian Dividend Aristocrats. In 2013, they increased their dividends to $0.80 per share compared with $0.52 the prior year. That’s quite an increase. The graphs below do not include 2013 and show the past 10 year growth in dividends (blue) and annual percentage of dividend increase (orange).

SU Dividend Growth

YearDividendsGrowthStock PriceSharesDividendsNew SharesValue
2002$0.08$12.44401$32.082$4,988.44
2003$0.1025.00%$16.40403$40.302$6,609.20
2004$0.1220.00%$21.20405$48.602$8,586.00
2005$0.120.00%$36.66407$48.841$14,920.62
2006$0.1525.00%$45.90408$61.201$18,727.20
2007$0.1926.67%$54.20409$77.711$22,167.80
2008$0.205.26%$25.83410$82.003$10,590.30
2009$0.3050.00%$35.75413$123.903$14,764.75
2010$0.4033.33%$38.28416$166.404$15,924.48
2011$0.437.50%$29.38420$180.606$12,339.60
2012$0.5220.93%$32.22426$221.526$13,725.72

If you had invested in SU prior to the financial crash, you were probably happy and now you are playing the waiting game … The value of the investment above highlights that it’s good to take profits sometimes 🙂 Suncor has clearly lagged the markets after the financial market corrections and is showing that they are committed to shareholders with the dividend increase and share buyback while being confident in their ability to grow earnings and cash flow. As much as historical data tells you about past behavior, it’s important to look forward considering the shareholder-friendly adjustments they have recently made in 2013.

SU vs Markets

SU Dividend Payout Ratio

Suncor has a very conservative payout ratio compared with other industries. Only recently have they increased their payout ratio even though their earnings have not increased as much. Their 10-year dividend payout ratio average is 13.54%.

I like to compare with their peers as it usually is a good indication that they are either doing to much to please shareholders or they are just catching up. Only Imperial Oil TSE:IMONYSE:IMO  has a low payout ratio in the double-digit now with 11%. All the other competitors are a little over the place without a clear average and guidelines. For example, Cenovus TSE:CVENYSE:CVE  has a payout ratio of 90% and Husky TSE:HSE has a payout ratio of 60%. The recent increase in dividends put SU at a 50% payout ratio.

SU Dividend Payout Ratio

SU EPS Growth

I am not sure how much an energy producer should have been hit during the financial crisis. Demands may have been lower but that’s quite a drop in earnings to go back to the 2005 levels and then bounce right back up. The graph is looking a little too much like a sawtooth graph and this is a point that would make me look elsewhere until I see consistency.

SU EPS Growth

Suncor Competitors

The five companies in the graphs are those on my watch list.

Energy Comparison

I personally have been focused on Enbridge TSE:ENBNYSE:ENB  as a utility for the past couple of years. It has been doing well and managed to split since I have held it. Husky Energy TSE:HSE has been my large oil producer with a nice yield above 4.5%. Suncor, however, is the largest producer and should not be counted out. The pre-financial crash performance is not there but it usually takes a few years for a large company to show improvements.

 

Thoughts

I want a stock I can count on during the good and the bad with consistent dividend growth. Suncor Energy is big enough to not trip over itself but its EPS is a little erratic for me at the moment. With the 50% dividend growth announced, the payout ratio reaches 50% leaving little room to grow dividends if EPS aren’t growing without adding risk. The lackluster growth in stock value is not appealing either. At this point, I am on happy to watch on the sideline.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.