Suncor Energy (TSX:SU) enjoyed windfall gains during the 2022 energy crisis on elevated oil prices. It is among the few Canadian oil stocks with a history of paying regular dividends and has been growing them since 2003. The pandemic forced it to break its record and halve its dividend. But Suncor bounced back in 2022 and increased its annual dividend by 79% to $1.88, above the pre-pandemic dividend per share of $1.68.
Suncor’s spectacular performance in the last two years makes it an attractive dividend stock. While it is a good stock to hold on for dividends, its cyclical peak has endedwas SU trades closer to its pre-pandemic level. While the company maintains a good dividend record, I would instead buy this dividend aristocrat with a bright future.
Dividend income from Suncor Energy
In dividend investing, the following three aspects impact your investment income:
- Dividend yield
- Stock price
- Dividend growth rate
Suncor has a higher dividend compounded annual growth rate (CAGR) of 17.9%, but its stock price is cyclical and ranges between $34 and $44, with some one-offs. If you invested in Suncor stock 10 years back, you would have got it for $36.7.0 And if you buy it today, you will get it for $38. Hence, the right time to buy Suncor stock is when it trades in the $34-$38 range, and sell it when it reaches $42-$44 as it cannot sustain this price. Why is that so?
Suncor is an oil company whose earnings depend on oil prices. The market demand and supply determine oil prices. Suncor can control its production according to the demand, and reduce its cost of production to enhance profits. As it pays dividends, that amount reflects in the stock price.
Even though Suncor increased its dividend growth rate, its dividend yield is below 6% to ensure it can pay dividends in a down cycle. For $38.25 a share, you are locking in an annual cash inflow of $2.08 for several years. And this cash flow could also increase.
Why do I prefer this dividend aristocrat over Suncor Energy?
Suncor has the yield and growth rate but lacks the stock price growth. Hence, I prefer another dividend aristocrat with a higher yield, lower but stable dividend growth, and stock price appreciation.
BCE (TSX:BCE) is a Canadian telecom operator set to ride the 5G rally. The company pays dividends from the subscription money it gets. And its stock price increases with upgrades in telecom technology. The latest technology (5G) commands a higher price. BCE has been paying regular dividends even before 2000 and growing them at a CAGR of 6.1% for the last 15 years.
BCE stock price has doubled since January 2010. While not a significant capital appreciation, long-term growth has enhanced its overall returns. Let us see how.
Dividend income: BCE vs. Suncor
| Year | Suncor Energy Dividend/share | Dividend Income ($5,000) | BCE Dividend/share | Dividend Income ($5,000) |
| 2023 | $2.08 | $282.88 | $3.87 | $696.60 |
| 2022 | $1.88 | $255.68 | $3.68 | $662.40 |
| 2021 | $1.05 | $142.80 | $3.50 | $630.00 |
| 2020 | $1.10 | $148.92 | $3.33 | $599.40 |
| 2019 | $1.68 | $228.48 | $3.17 | $570.60 |
| 2018 | $1.44 | $195.84 | $3.02 | $543.60 |
| 2017 | $1.28 | $174.08 | $2.87 | $516.60 |
| 2016 | $1.16 | $157.76 | $2.73 | $491.40 |
| 2015 | $1.14 | $155.04 | $2.60 | $468.00 |
| 2014 | $1.02 | $138.72 | $2.47 | $444.60 |
| 2013 | $0.73 | $99.28 | $2.33 | $419.40 |
| 2012 | $0.50 | $68.00 | $2.22 | $399.60 |
| 2011 | $0.43 | $58.48 | $2.05 | $368.10 |
| 2010 | $0.40 | $54.40 | $1.79 | $321.30 |
If you invested $5,000 in each of the two stocks on January 15, 2010, you would have gotten 136 shares of Suncor at $36.71 and 180 shares of BCE at $27.75. The above table shows how much the annual dividend stocks would earn on your $5,000 investment. Your BCE investment would earn $696.60 in dividend income in 2023, $413 more than Suncor.
As for capital appreciation, 136 Suncor shares would be worth $5,202, while 180 BCE shares would be worth $10,553 as the stock price surged to $58.57 despite trading closer to its 52-week low.
Therefore, I prefer investing in BCE over Suncor. You can do similar backtracking for other stocks, but remember that past performance does not guarantee future growth.
