Suncor (TSX:SU) and BCE (TSX:BCE) are way off their 12-month highs amid the pullback in energy and communications stocks over the past year.
Contrarian investors seeking good dividend yields and attractive total returns are wondering if SU stock and BCE stock are now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
Suncor
Suncor has underperformed the other major oil sands producers in the wake of the 2020 market crash. Investors didn’t like the 55% dividend cut the board implemented in the early months of the pandemic, especially when other Canadian oil majors held their payouts steady or even increased the distributions in 2020.
Suncor eventually raised the dividend in late 2021 to recover the cut and has since increased it to a new all-time high. Investors are still not giving SU stock any love. The shares trade near $38 at the time of writing. This is pretty close to where they were before the crash.
Peers, however, have enjoyed strong gains in the past two years and now trade well above their early 2020 prices.
Suncor has a new chief executive officer who is an industry veteran. He has already trimmed payroll to get expenses more in line with competitors and is focused on putting Suncor back on track. It will take time to turn the business around, and new challenges continue to emerge. Suncor is currently dealing with a recent cyber attack.
Contrarian investors who are bullish on oil prices and see fuel demand expanding might want to start nibbling on Suncor while it is out of favour. Ongoing volatility should be expected, but you get paid a 5.4% dividend yield right now, and there is attractive upside potential if oil prices move higher and Suncor sorts out its operational challenges.
BCE
BCE trades for close to $57 per share right now compared to a high last year above $70. The dividend yield is 6.8% at the current price, which is pretty good on a stock that has increased the payout by at least 5% annually for the past 15 years.
BCE gets most of its revenue from mobile and internet subscriptions. These are essential services people and businesses need to communicate and stay connected to the world. As such, the core cash flow stream should hold up well during a recession. In fact, revenue and free cash flow are expected to increase this year compared to 2022.
That being said, rising interest rates are driving up borrowing costs, and a drop in ad spending is hitting the media group. Adjusted earnings will likely drop in 2023, but investors should still see a solid dividend increase for 2024.
Is one a better pick?
Suncor and BCE both look cheap today and pay attractive dividends that should continue to grow.
Investors focused on passive income should probably make BCE the first choice. Suncor, however, might have more upside torque if the oil price jumps. If you buy Suncor, you should be an oil bull and be willing to ride out some additional potential turbulence in the near term.
