Historically, dividend stocks have outpaced the broader markets over time. Generally, a company that pays shareholders a dividend generates consistent profits. However, this may not always be the case.
For instance, profit margins of capital-intensive companies in sectors such as utilities and real estate were under pressure in 2023 due to rising interest rates, resulting in dividend cuts.
So, it’s crucial to identify a company with steady cash flows, strong balance sheets, a widening earnings base, and a sustainable payout ratio.
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Is Suncor a good dividend stock?
One of the most popular dividend stocks in Canada is Suncor (TSX:SU), which currently yields 5.1%. Suncor is among Canada’s largest integrated energy companies. Its operations include oil sands development, offshore oil and gas, and petroleum refining, among others.
Suncor recently closed its acquisition of TotalEnergies EP Canada for $1.468 billion. Now, Suncor is the sole owner of the Fort Hills project, located in Alberta’s Athabasca region, allowing it to raise production and earnings in the future.
However, Suncor is part of the energy sector, which is highly cyclical. While the company reported record profits in 2022, its adjusted earnings are forecast to decline by 38% year over year in 2023 as oil prices have cooled off.
Similar to several other oil companies, Suncor was forced to lower its dividends by more than 50% during the onset of COVID-19 as oil prices fell off a cliff. Suncor has trailed the broader markets by a wide margin, returning 63% in the past decade after adjusting for dividends. Comparatively, the TSX index has gained 110% since January 2004.
Here’s a recession-resistant dividend stock you can buy instead of Suncor right now.
A top TSX dividend stock to buy right now
Income-seeking Canadians can consider investing in Great-West Lifeco (TSX:GWO), which currently offers you a yield of 4.8%. Great-West is engaged in the insurance business, providing services such as life and health insurance, in addition to retirement, wealth, and asset management.
A global behemoth, Great-West is valued at a market cap of $40 billion. In the third quarter (Q3) of 2023, it reported a base earnings per share of $1.02, an increase of 17% year over year. It also ended Q3 with a life insurance capital adequacy test (LICAT) ratio of 128%, up from 126% in the year-ago period.
The LICAT ratio is used to measure the financial position of insurers, and a ratio of over 100% is favourable.
Great-West attributed recent strategic transactions and operational improvements across business segments to its stellar Q3 results. In addition to business growth, earnings were driven by a strong performance across equity markets and higher interest rates, resulting in higher fee income.
Great-West is forecast to increase adjusted earnings from $3.45 per share in 2022 to $4.14 per share in 2024. Moreover, analysts expect earnings to expand by 6.5% annually in the next five years.
Priced at 10.1 times forward earnings, GWO stock is quite cheap, given its growth estimates and high dividend yield. The company is a blue-chip giant that has thrived across business cycles. In the last 19 years, it has raised dividends by 5% annually, showcasing the resiliency of its business model.
