Why Suncor Makes So Much Sense As a Dividend Play

While many investors may remain completely averse to touching anything associated with Canada’s oil sands, Canadian producer Suncor Energy Inc. (TSX:SU)(NYSE:SU) certainly makes the case that paining an entire industry with a broad brush can be a bad idea.

While shares of Suncor have basically remained stable in recent years (while its competition saw massive losses relating mainly to the differential between West Texas Intermediate (WTI) and Western Canadian Select (WCS) oil prices), Suncor has used its size and scale to continue operating, maintaining its margins through diversification and integration throughout its supply chain, to a degree not present in the vast majority of companies operating in the oil & gas industry in Canada.

Suncor’s recent dividend hike of more than 12% was spurred by earnings which took investors and analysts by surprise earlier last month. The company earned $0.79 for the quarter, compared to expectations of only $0.71, beating earnings by a double-digit margin.

The company has traditionally grown in recent years through acquisitions, boosting both its upstream operations and downstream operations, de-leveraging the company to the price of oil. With oil now stabilizing at higher levels, it may be more difficult for Suncor to pick up assets at bargain prices, although a number of analysts believe the company is prodding others in the industry to see what is possible.

Given the size and scale of Suncor overall, I would not be surprised if something took place in the next quarter or two, as the company will need a place to reinvest its capital besides dividend increases (which are obviously great for shareholders).

Invest wisely, my friends.