Tuesday, October 18, 2011

Suncor Energy

I do not own this stock (TSX-SU). This stock has a current dividend yield of 1.47%, which is quite high for this stock. The 5 year median dividend yield is much lower at .65% and the 10 year median dividend yield is even lower at .4%. This is a stock that raises it dividend each year, at least lately, but has a very low yield. It is only on one of the dividend lists I follow of Dividend Achievers (see resources).

Over the past 5 and 10 years, the dividend growth has been at 31% and 20% per year, respectively. However, the portion of the total return that is attributable to dividends would only be around .6% (that is slightly higher than ½ of 1%). The Dividend Payout Ratios are correspondingly low. The 5 year median DPR for earnings is 12% and for cash flow is 3%. The expected DPR for 2011 is 14% for earnings and 7.4% for Cash Flow. Both are quite low. (See my site for information on Dividend Payout Ratios).

The total return on this stock is not bad because if you had held it for 10 years, you have made a return of around 10% per year, plus dividends. If you had held it for the past 5 years, you would only have made a return of around 1%, plus dividends. However, dividend income is so low that you are really only getting capital gain in investing in this stock. To my mind, any stock that gives a dividend under 1% is not a dividend paying stock.

For this stock, I am following it from Petro-Canada (TSX-PCA) into Suncor Energy (TSX-SU). Petro-Canada and Suncor merged in August of 2009. Petro-Canada was considered to be 40% of the merged company. In the new merged company, PCA shareholders got 1.28 shares for each of their old shares.

As far as revenue goes, Suncor’s revenue has grown, but the portion of the revenue attributed to PCA has dropped considerably. As a merged company, revenue has not grown at all. Also, as a merged company Cash Flow has also not grown.

But, growth has been good for earnings and book value. Over the past 5 and 10 years, EPS has grown at 16% per year. Over the past 5 and 10 years, book value has grown at 10% and 13% respectively. The Return on Equity for 2010 is ok at 9.7%, but the 5 year median is better at 16.7%. The 12 months ROE ending in the 2nd Quarter of June 2011 is also better at 10.4%.

The debt ratios are fine for this company. The current Liquidity Ratio at 1.27 is a little low. The current Asset/Liability Ratio is great at 2.13. Both the Leverage Debt/Equity Ratios are fine, currently at 1.88 and 0.88 respectively.

The problem, I think with this company, is that you cannot really consider it a dividend paying stock, as the dividend yield is so low. However, having a very low dividend probably means that the dividends will not fluctuate with the price of oil, but will continue to increase. Tomorrow, I will look to see what the analysts says about this company and what my spreadsheet says about the current stock price.

The Wealthy Canadian talk about this stock in a recent blog.

Suncor Energy Inc. is an integrated energy company. Suncor's operations include oil sands development and upgrading, conventional and offshore oil and gas production, petroleum refining, and product marketing under the Petro-Canada brand. Suncor is also developing a growing renewable energy portfolio. Their international and offshore business includes operations in the North Sea (United Kingdom, Netherlands and Norway) and the East Coast of Canada. They are also in Libya, Syria and Trinidad and Tobago. Its web site is here Suncor. See my spreadsheet at su.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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