New TFSA Investors: Should Suncor Energy Inc. (TSX:SU) Be in Your Retirement Portfolio?

Suncor Energy Inc. (TSX:SU)(NYSE:SU) might not be the first name that comes up when people search for a top TFSA investment, but the company deserves to be on your radar. Here’s why.

| More on:

Young Canadians are searching for ways to set some money aside for the golden years.

This isn’t new, as people have always prepared for retirement, but the situation for millennials is somewhat different than it was for their parents or grandparents.

In the past, most new graduates found good full-time jobs right out of school, and the positions normally came with generous benefits, including a pension plan. Today, such jobs still exist, but they are less common, and young people often have to take on a series of internships or contract positions before they land a permanent gig.

When the dream job finally arrives, the benefits can vary widely, especially when it comes to a pension. Defined-contribution plans are replacing defined-benefit programs, thus shifting the risk on to the shoulders of the employee.

In addition, young people who manage to buy a house in the current market shouldn’t expect to see the value increase the way it did for their parents. Depending on the city, there is a chance a home purchased today might not be worth more in 15 or 20 years.

Fortunately, young Canadians have a savings tool that wasn’t available to their parents at the same age. It’s called the Tax-Free Savings Account (TFSA).

Millennials can buy dividend-growth stocks inside the TFSA and invest the distributions in new shares to take advantage of a powerful compounding process. Over time, a modest initial investment could turn into a large nest egg, and when you decide to cash out, all the gains are yours to keep.

Let’s take a look at Suncor Energy Inc. (TSX:SU)(NYSE:SU) to see why it might be an interesting pick.

Integrated business

Suncor is known as an oil sands company, but it also operates refineries and more than 1,500 Petro-Canada retail locations. These downstream assets provide a nice hedge against difficult times in the oil market and are a key reason Suncor’s stock held up so well during the rout.

Growth

Suncor took advantage of the downturn to acquire strategic assets at discounted prices, including the purchase of Canadian Oil Sands, which gave Suncor a majority position in Syncrude. Suncor also used its strong balance sheet to push ahead with large developments, including Fort Hills and Hebron, which were completed in late 2017.

Dividends

The new assets are ramping up production, and output should continue to grow for years. As a result, revenue and cash flow are expected to increase, providing support for dividend hikes. Suncor already raised the payout by 12.5% for 2018. The current distribution generates a yield of 2.8%.

Returns

A $10,000 investment in Suncor 20 years ago would be worth more than $110,000 today with the dividends reinvested.

Should you Buy?

There is no guarantee Suncor will deliver the same performance over the next two decades, but the company remains an attractive pick, and the strategy of owning dividend-growth stocks and investing the distributions in new shares is a proven one.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stock mentioned.

More on Energy Stocks

data analyze research
Energy Stocks

If I Could Only Buy and Hold a Single Stock, This Would Be it

Do you want a great stock you can buy and hold? Here's my top pick to consider buying that is…

Read more »

ways to boost income
Energy Stocks

2 Absurdly Undervalued TSX Stocks I’d Buy Today

Discover why Magellan Aerospace and Total Energy Services are two incredibly undervalued TSX stocks that savvy investors shouldn't ignore.

Read more »

oil and gas pipeline
Energy Stocks

TC Energy: Buy, Sell, or Hold in 2025?

TC Energy enjoyed a big rally in 2024. Are more gains on the way?

Read more »

Nuclear power station cooling tower
Energy Stocks

5 Reasons to Buy Cameco Stock Like There’s No Tomorrow

Cameco stock looks like it could remain a major winner in the near and distant future as the world goes…

Read more »

oil and natural gas
Energy Stocks

The Best Energy Stock to Invest $200 in Right Now

This energy stock isn't going anywhere anytime soon, which is what makes it such a solid investment, especially for dividend…

Read more »

oil pump jack under night sky
Energy Stocks

What to Know About Canadian Energy Stocks for 2025

There is a lot to consider among energy stocks heading into 2025, so let's look at some considerations and stocks…

Read more »

oil pump jack under night sky
Energy Stocks

The Best Energy Stock to Invest $2,000 in Right Now

TerraVest Industries is an undervalued TSX stock that trades at a discount to consensus price target estimates.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Canadian Oil and Gas Stocks to Watch for 2025

After outperforming the broader market in 2024, these two top Canadian oil and gas stocks could continue soaring in 2025…

Read more »