Get 4.6% yield from Suncor Energy

Despite a 5.9% rise in average daily oil production in the most recent quarter, Suncor Energy’s benchmark price for oil sands crude fell 5.2%. This led to an 8.0% revenue decline, although the final number still beat the consensus forecast.

The stock trades at just 4.9 times the company’s 2024 earnings forecast as the firm’s plan to boost productivity looks to deliver annual savings of $450 million, which is $50 million more than originally estimated.

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SUNCOR ENERGY INC. (Toronto symbol SU) is Canada’s largest integrated oil firm, with major projects in the Alberta oil sands. It also operates four refineries (three in Canada and one in Colorado), along with 1,875 Petro-Canada gas stations.

Suncor’s average daily oil production in the three months ended December 31, 2023, rose 5.9%, to 808,100 barrels a day from 763,100 a year earlier. However, the company’s benchmark price for oil sands crude fell 5.2%.

As a result, revenue in the quarter declined 8.0%, to $12.81 billion from $13.92 billion. Even so, that beat the consensus forecast of $11.44 billion.

Overall cash flow dropped 3.7%, to $4.03 billion from $4.19 billion. Due to fewer shares outstanding, cash flow per share rose 0.3%, to $3.12 from $3.11. That still topped the consensus forecast of $2.55.

Energy Stocks: Safety, reliability and costs are all set to improve for Suncor Energy

The company expects to spend between $6.3 billion and $6.5 billion on exploration and upgrades in 2024. It also forecasts average production for the year of 770,000 to 810,000 barrels a day.

Suncor recently cut roughly 10% of its workforce as part of a plan to boost productivity. The cuts should save it $450 million annually, up $50 million from its original estimate.

Moreover, the company is seeing the benefits of its plan to improve the safety and reliability of its refining operations. In the fourth quarter of 2023, the utilization rate of its refineries (the amount of oil and gas processed as a percentage of their capacity) improved to 98% from 94% a year earlier.

The stock now trades at an attractive 4.9 times this year’s likely cash flow. As well, with the December 2023 payment, Suncor raised your quarterly dividend by 4.8%, to $0.545 a share from $0.52. The new annual rate of $2.18 yields a high 4.1%.

Suncor has now increased its dividend by an average 5.3% annually over the last 5 years. Its TSI Dividend Sustainability Rating is Above Average.

Recommendation in The Successful Investor: Suncor Energy Inc. is a buy.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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