Suncor Energy (TSX:SU) is among the best-performing, large-cap stocks on the TSX Index this year. Up 26% year to date, it has soundly outperformed the TSX Composite Index. Despite all of these gains, the stock still has a 4% dividend yield, meaning that when you buy it, you get 4% of your money back each year in dividends alone! At least, that’s how it works if the company does well. In extreme oil bear markets, Suncor sometimes cuts its dividend. For example, it did so in the 2020 oil bear market, which saw West Texas Intermediate (WTI) crude futures briefly turn negative.
Today, oil trades for a healthy $83, and Suncor is making plenty of money. In this article, I will explore whether now is the time to buy SU stock or whether investors are better off waiting.
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Relatively high oil prices
One thing Suncor Energy has going for it right now is high oil prices. At today’s prices, WTI crude goes for $83.72 per barrel, which is well above the five-year trend. It’s definitely a bullish market for oil. Not only are oil prices high this year, they have been relatively high all year long. As the chart on Oilprice.com shows, Brent crude has been above $85 all year long. WTI crude, for its part, has been above $82 all year long.
Suncor Energy is an exploration and production company, meaning that it extracts, refines, and sells crude oil. This gives the company many ways to profit off rising oil prices. For example, when oil prices go up, Suncor sells it directly at higher prices to customers. It also charges higher prices at its Petro Canada stations. So, there are many ways for this company to make money in an oil bull market.
Suncor Energy’s most recent earnings release was not particularly good. In it, revenue and operating cash flows increased slightly while net income declined. That wasn’t encouraging, but this was the fourth quarter — before the current oil bull market got started. Most likely, first-quarter earnings will be much stronger. Those are set to be released on May 5, so be sure to keep your eyes peeled — earnings are just around the corner!
High dividend income
Another thing Suncor Energy has going for it is high dividend income. The company pays a $0.55 quarterly dividend. That works out to $2.20 per year. At today’s stock price of $53.87, the yield is 4.08%. That’s a decent amount of income, and it could grow if Suncor performs well.
Foolish takeaway
Suncor Energy is one of Canada’s best-known energy companies for a reason. It has plenty of good assets, a lot of earnings power, and a network of gas stations spanning the country. Like all exploration and production companies, it depends on high oil prices to thrive. Today, with oil prices high and many experts expecting them to stay that way, the company appears to have the makings for a successful few years. On the whole, I’d say Suncor Energy stock is worth owning today. Just remember not to get scared out of your position when oil prices take a dip.
