Smart Dividend Portfolio Edition #41: Energizing Value
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Dear Investor,
Welcome to the 41st edition of TipRanks’ Smart Dividend Portfolio & Newsletter.
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Market-Moving News: December 29, 2024
Despite the widespread sell-off on Friday, stocks managed to close the last full trading week of 2024 with gains. The S&P 500 (SPX) rose by 0.67% and the Dow Jones Industrial Average (DJIA) increased by 0.35%. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) gained 0.76% and 0.86%, respectively.
After a strong start to the week, investors returned from the Christmas break in an anxious mood, with markets finishing nearly flat on Thursday and tumbling on Friday. The week’s last session saw all S&P 500 sectors in the red, despite thin trading, following a jump in 10-year Treasury yields to their highest in six months amid inflation worries and expectations of slower Fed easing than was previously priced in.
Friday’s losses were led by this year’s biggest gainers – Communications Services, Technology, Consumer Discretionary, and Financial sectors. While the first three have been leading the rally since late 2022 or early 2023, Financials arrived at the party during the second part of this year, as they were supported by outsized institutional investor inflows.
Indeed, starting a few months ago, hedge and mutual funds began piling into the Financial sector, specifically large banks, as expectations for deregulation and lower taxes under the incoming Trump administration started to grow. This development supported the rally that was ignited by economic resilience and the Fed’s easing cycle. As a result, the S&P 500’s Financials rose by almost 30% year-to-date, outperforming the broad benchmark’s 25% gain. Moreover, the sector is seen as the clear winner in terms of the rally’s breadth, with 89% of stocks above their 200-day moving average, compared to 56% for the total S&P 500 stock universe.
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This Week’s Quality Dividend Stock Idea
Suncor Energy (SU) is a Canadian1 integrated energy company specializing in the exploration, production, refining, and marketing of petroleum and petrochemical products. Its operations include oil sands development, conventional and offshore oil production, and a network of retail fuel stations under the Petro-Canada brand. SU is Canada’s second-largest energy producer and a leading operator in the oil sands sector.
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1 – all amounts mentioned below are in U.S. dollars.
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Growth Through Strategic Evolution
Suncor Energy Inc. traces its roots to the founding of Sun Company of Canada in 1919, a subsidiary of Sun Oil Company. In 1967, Suncor pioneered commercial oil sands development with the launch of the Great Canadian Oil Sands project in Fort McMurray, Alberta, marking the beginning of large-scale oil sands production in the region.
During the 1990s, Suncor expanded its oil sands capacity and integrated operations by investing heavily in new technologies, including facility upgrades and environmental initiatives, positioning itself as a leader in oil sands development. In 2009, Suncor merged with Petro-Canada in a landmark $19 billion deal, creating Canada’s largest energy company at the time and diversifying its asset base to include conventional oil, natural gas, and a nationwide retail network under the Petro-Canada brand.
In the 2010s, Suncor drove growth through strategic acquisitions, including the purchase of Canadian Oil Sands Limited in 2016, which increased its ownership stake in the Syncrude oil sands project. Investments in advanced extraction technologies and renewable energy initiatives, such as wind power projects, further underscored its commitment to sustainability and operational efficiency.
Facing industry headwinds in the 2020s, Suncor focused on optimizing assets, reducing costs, and divesting from non-core businesses. It also invested in digital technologies to enhance productivity and improve environmental performance. A leadership change in 2022 catalyzed an overhaul of operations, fostering incremental efficiency gains and a cultural shift that significantly improved performance.
Today, SU stands as a key player in the global energy market, leveraging its integrated business model, innovation in oil sands extraction, and diversified portfolio to navigate market shifts and drive long-term revenue growth. With a market capitalization of $44.4 billion and annual revenues (TTM) exceeding $38 billion, Suncor Energy ranks #327 on the 2024 Fortune Global 500 list of the world’s largest corporations by revenue.
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Integrated Operations Drive Efficiency
Suncor operates one of the largest oil sands production facilities in the world, with significant contributions from large sites such as the Alberta-based assets of Firebag and Syncrude. Its substantial production capacity provides scale advantages and positions the company as a leader in oil sands development.
SU’s integrated operations span the entire value chain, from upstream production of bitumen and conventional oil, to midstream upgrading and refining, and downstream sales through its extensive retail network. This integration allows Suncor to capture value at every stage of the supply chain while managing price volatility by balancing upstream production with downstream refining and marketing margins.
Oil sands reserves have lower natural production decline rates compared to conventional oil fields, offering long-term production stability and reducing the need for constant reinvestment to maintain output. Suncor benefits from strong refining margins, given its ability to process heavy oil into high-value products like diesel and gasoline. Additionally, its marketing segment captures premium margins through its expansive retail fuel network.
In recent years, Suncor has focused intensely on boosting production and improving efficiency to drive growth and maintain competitiveness. Investments in digital tools and automation have enhanced productivity, streamlined maintenance, and reduced costs. The company has also prioritized sustainable operations by reducing emissions intensity and improving energy efficiency across its facilities.
These efforts have yielded significant results, including record production levels at its Firebag facility for five consecutive months, achieved through advanced steam-assisted gravity drainage (SAGD) technology. Firebag is seen as a critical asset, capable of offsetting and surpassing declining production from the Base Plant oil sands mine, which is projected to deplete over the next decade.
Suncor has also integrated its Syncrude operations with nearby assets to share infrastructure and resources. This integration has improved Syncrude’s performance, reduced operating expenses, and maximized production output, aligning with Suncor’s broader strategy of leveraging its oil sands assets for long-term growth and profitability.
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Strong Balance Sheet and Robust Profitability
Unlike many companies in the capital-intensive energy sector, Suncor maintains a moderate debt level, with a net debt-to-equity ratio below 18%. This debt is well-covered by operating cash flows, and interest payments are covered many times over by EBIT. In Q3 2024, Suncor achieved its net debt target of $5.6 billion while maintaining a net debt-to-Adjusted Funds From Operations (AFFO) ratio of 0.6x, reflecting a strong balance sheet and financial resilience.
Suncor’s balance sheet strength is underscored by its investment-grade credit ratings: “BBB+” from Fitch, “Baa1” from Moody’s, and “BBB” from S&P. Despite operational concentration in Alberta’s oil sands region and increasing regulatory pressures from Canada’s federal environmental policies, Fitch highlights Suncor’s “large upstream production scale, high degree of integration in oil refining and fuel marketing, low natural production decline rates, above-average integrated margins, and conservative financial policy” as key factors supporting its ratings.
In addition to balance sheet strength, Suncor exhibits outstanding capital efficiency and profitability metrics. Operational streamlining and digital initiatives have reduced maintenance costs and improved reliability, enhancing profit margins. Consequently, Suncor’s gross, operating, net profit, and free cash flow margins, as well as its ROE, are significantly higher than the North American Oil & Gas industry average, with its ROA ranking in the top 20%.
Recent operational and financial improvements have driven remarkable growth in Suncor’s financial performance. Revenue growth accelerated from a historical CAGR of ~2.5% over the past decade to ~14% over the last three years. Earnings growth has been even more impressive, jumping from a decade-long CAGR of ~12% to nearly 58% in the last three years.
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Shareholder-Friendly Capital Allocation
Suncor’s back-to-back improvement in financial and operational metrics highlights its disciplined approach to debt and capital allocation. The company emphasizes prudent investment, operational efficiency, and manageable debt levels, while prioritizing shareholder returns through dividends and share buybacks.
Suncor continues to focus on reducing its overall cost structure and increasing financial resilience, ensuring the safe and reliable operation of its assets. In 2025, Suncor plans to reduce capital expenditures by 5% compared to 2024, focusing on high-return projects and effective cost management. Simultaneously, the company aims to increase production, leveraging enhanced export capacity from infrastructure developments like the Trans Mountain Pipeline expansion.
SU has a strong track record of returning cash to shareholders, having distributed over 65% of its average market capitalization to shareholders over the past decade. The company plans to return at or near 100% of its excess funds to shareholders through share buybacks. Excess funds are defined as Adjusted Funds From Operations (AFFO) remaining after sustaining capital expenditures, high-return growth investments, dividend payments, and other costs, including leases and working capital changes.
Suncor Energy has a longstanding history of dividend payments, consistently distributing quarterly dividends to its shareholders since 1992. While the company temporarily reduced its payout in 2020 due to the pandemic-driven economic downturn and decreased oil demand, it resumed annual dividend increases in 2021, surpassing pre-pandemic levels in 2022.
Suncor is committed to a reliable and growing dividend, targeting an annual growth rate of 3-5%. Over the past three years, its annual dividend grew at a CAGR of ~38%, with the most recent increase on December 24, 2024, raising the annual payout by ~4.5%. Suncor’s current dividend yield stands at 4.56%, among the highest in the industry.
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Undervalued Stock with Upside Potential
Suncor Energy’s stock has risen by ~14% this year, outperforming all of its Canadian peers. Despite this growth, the stock remains attractively valued, trading at a discount not only to the typically higher-valued U.S. Energy sector but also below the average valuation for Canada’s Oil and Gas industry. Among its peers, SU trades at the lower end of the valuation spectrum. Furthermore, discounted cash flow analysis indicates that the company may be undervalued by about 50%, positioning SU as a “deep value” stock. Analysts’ average price targets suggest an additional 28% upside over the next 12 months.
Suncor’s stock performance is further supported by its strategic buyback program. In May 2024, the company announced an increase in share repurchases to 75% of its free funds flow for the quarter, with plans to raise this to nearly 100% after achieving its net debt target. Having reached this goal in Q3 2024, buybacks are expected to accelerate even further. In the first three quarters of 2024, Suncor repurchased shares totaling over $1.9 billion, reflecting its commitment to enhancing shareholder value.
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Investing Takeaway
Suncor Energy is Canada’s leading integrated energy company, excelling in oil sands production, refining, and fuel marketing. Supported by low debt, investment-grade credit ratings, and strong cash flows, SU achieved its net debt target in 2024 and actively returns capital to shareholders through a robust buyback program and an industry-high dividend yield. With a 32-year history of dividend payments and a commitment to annual increases, Suncor combines financial resilience with shareholder-friendly capital allocation. Trading at a significant discount to peers and undervalued by approximately 50% based on future cash flows, SU offers a compelling opportunity for income-focused investors seeking value and long-term returns.
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Dividend Investor Portfolio
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Portfolio News
▣ Amgen (AMGN) has raised its dividend by ~6%, with the next increased payout scheduled to be disbursed on March 7th, 2025.
▣ The ex-dividend date for JPMorgan Chase & Co. (JPM) is January 6th, 2025.
▣ Edison International (EIX) has raised its dividend by 6.1%, with the next increased payout scheduled to be disbursed on January 31st, 2025.
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Recent Trades
None at the moment, although we are constantly evaluating stocks for a possible addition to the portfolio. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Expected Dividend Growth | Expected Annual Income |
| 3.82% | +9.49% | $5,023.69 |
| Yield-on-Cost Adjusted, Weighted |
Average Analyst 12-Month Growth Outlook | 10K Per Stock at the Time of Purchase |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Yield on Cost | Annual DPS |
| Automatic Data Processing (ADP) | Dec 13, 2024 | Jan 01, 2025 | 2.24% | $5.60 |
| Allianz SE ADR (ALIZY) | May 09, 2025 | May 28, 2025 | 5.67% | $1.49 |
| Amgen (AMGN) | Feb 14, 2025 | Mar 07, 2025 | 3.27% | $9.52 |
| BlackRock (BLK) | Mar 07, 2025 | Mar 22, 2025 | 2.56% | $20.40 |
| Edison International (EIX) | Jan 07, 2025 | Jan 31, 2025 | 4.82% | $3.12 |
| EOG Resources (EOG) | Dec 13, 2024 | Dec 30, 2024 | 3.95% | $3.64 |
| IBM (IBM) | Feb 10, 2025 | Mar 10, 2025 | 3.13% | $6.68 |
| JPMorgan Chase (JPM) | Jan 06, 2025 | Jan 31, 2025 | 2.86% | $5.00 |
| Kroger (KR) | Feb 15, 2025 | Mar 01, 2025 | 2.82% | $1.28 |
| LyondellBasell (LYB) | Mar 10, 2025 | Mar 17, 2025 | 5.27% | $5.36 |
| Philip Morris (PM) | Dec 26, 2024 | Jan 13, 2025 | 6.06% | $5.40 |
| Qualcomm (QCOM) | Mar 03, 2025 | Mar 24, 2025 | 2.25% | $3.40 |
| VICI Properties (VICI) | Dec 17, 2024 | Jan 09, 2025 | 5.19% | $1.72 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
