With the ongoing energy crisis, global oil demand is increasing at a rapid pace, leading prices to skyrocket. This has compelled all major players in the energy business to ramp up their production in order to bridge this supply gap. Investors can also take advantage of this situation by purchasing energy stocks and expect capital appreciation in the long term.
In this regard, now may be the best time to buy Suncor (TSX:SU) stock.
Here are a few reasons why Suncor is among the top energy names to consider right now.
Suncor purchases additional working interest in Fort Hills project
Reports have been circulating around Suncor looking to add exposure to other projects. Accordingly, the news that came out this February that Suncor purchased a 14.65% additional working interest in Teck Resources’s Fort Hills Project should come as no surprise.
This deal had an approximate valuation of US$688 million, and increased Suncor’s share in the project to 68.76%. According to the company sources, this new acquisition will enable Suncor to enhance its performance in the long run. I think this is certainly the case for those bullish on oil prices. Adding asset exposure in times when oil prices dipped considerably could turn out to be a very profitable trade, given where the price of oil has trended of late.
Profits worth $2.74 billion in the last quarter of 2022
The recent surge in oil prices to more than US$82 per barrel for West Texas Intermediate has certainly bolstered Suncor’s profitability. This was seen in the company’s Q4 earnings report, which showed 76% bottom-line growth. Earnings of US$2.74 billion translated into US$1.81 per share in profit, up from US$0.89 per share in the same quarter a year earlier.
The company’s operating revenue, predictably, also surged. As oil prices have surged, so too has the company’s bottom line. With most of Suncor’s costs relatively fixed, investors benefit considerably from this higher-price environment. Additionally, with prices on the rise, one might assume that earnings will continue to improve from here. Thus, I can’t understand the rock-bottom valuation of Suncor stock at less than seven times trailing earnings right now.
A solid dividend hike
One of the other key benefits of surging profitability is the ability for Suncor to continue to return capital to shareholders. The company has done just that, increasing its dividend 11% to $0.52 per share from the previous $0.47-per-share level.
With ample cash flow to cover this dividend, Suncor’s 4.8% yield is among the best of its peers. In the energy sector, there are few stocks I like more from a valuation and dividend standpoint. Investors may not get eye-popping growth, but this is a stock that provides stability and incredible earnings potential. Indeed, in this market, those factors are likely to remain among the most important for conservative investors.
