With Warren Buffett as a major shareholder, Suncor Energy (NYSE: SU) carries a strong recommendation just from that fact. Considered by many to be the greatest investor ever, Buffett, the “Oracle of Omaha,” is worth over $50 billion. That wealth was accumulated largely by investing in companies such as Suncor Energy.
As detailed in previous articles on this site, Canadian energy concerns are proving to be highly desirable investments. The safety and political stability of North America is attracting major oil firms such as Spain’s Repsol (OTC: REPPY) and China’s CNOOC (NYSE: CEO), among many others. A Wall Street Journal article reported that Repsol will spend up to $10 billion for North American energy assets. In the last five years, China alone has invested over $40 billion in North American energy assets.
The Perks of Canadian Energy
Those operating in Canada are doing very well, ranging from major firms like Suncor Energy to small-cap companies like Octagon 88 (OTC: OCTX) and Americas Petrogas (CVE: GRO). Soaring due to positive development for its Canadian holdings, Octagon 88 has been a top performer for oil and natural gas stocks over the last quarter. Americas Petrogas has done well as it has hired an investment bank for a “strategic review” to raise the stock price. So far, it is working!
What is also working is Buffett’s investment in Suncor Energy.
For the last quarter, the share price has risen by more than 10%. It should continue to do so as the earnings per share for Suncor Energy are projected to increase 9% annually over the next five years, according to the analyst community. That would result in the price-to-earnings ratio being around 11, which is very attractive.
Suncor Energy has the financial indicators to support that appeal. The gross margin is well over 55%. By contrast, the gross margin for ExxonMobil (NYSE: XOM), the world’s largest oil and natural gas firm, is less than half that. That too is very appealing for those investing in Suncor Energy.
What is also tempting is the dividend yield of Suncor Energy.
The average dividend yield for a member of the Standard & Poor’s 500 Index is around 1.9%. At almost 2.2%, Suncor’s is about 20% higher. In addition, Suncor Energy has a history of increasing its dividend. With a payout ratio in the low 30s, there is plenty of cash for Suncor Energy to raise the dividend or initiate stock buyback programs to shareholders. Either would increase the total return for the investment.
Concerns for Oil and Natural Gas
It has been a rough quarter for the oil and natural gas sector.
The exchange-traded fund for oil, United States Oil (NYSE: USO), is down almost 10%. Global demand is still weak, and inventories are high. Suncor Energy is off slightly for the last month and week of market action.
Investors should look upon that as an opportunity to buy for the long-term at a lower share price with a higher yield, as the result.
Now trading around $35 per share, the mean analyst target price for Suncor Energy over the next year of market action is $45.00. Combined with the dividend yield, that is a solid total return. With a short float of just 0.37%, few are betting that the share price will fall.
What are your thoughts on Suncor Energy?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.