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Suncor is an 'underappreciated' cash machine: analyst

Suncor announced on Wednesday that it's returning is coveted dividend to 2019 levels.
Suncor announced on Wednesday that it's returning is coveted dividend to 2019 levels. (GETTY)

Suncor Energy's (SU.TO)(SU) plan to double its payout to shareholders on the heels of a strong quarter boosted by higher oil prices sent the company's stock to its highest level since June on Thursday. One analyst sees Suncor's latest financial results as a "turning point" for the stock, which has lagged so far in this year's energy rally.

The Calgary-based oil producer and refiner's board approved a 100 per cent dividend hike to $0.42 per common share from $0.21 per share, on Wednesday. The company says the increase will kick in on Dec. 24, 2021. In addition to returning its dividend to 2019 levels, Suncor is also increasing its share buyback plan to roughly seven per cent of its float, or 107 million shares.

"Since the start of 2021, we have returned $2.6 billion to our shareholders through share repurchases and dividends, and have reduced net debt by $3.1 billion, demonstrating significant progress towards fortifying our balance sheet and meeting our capital allocation targets for the year," Suncor chief executive officer Mark Little said in a news release on Thursday.

The company booked a net profit of $877 million or $0.59 per share in its fiscal third quarter of 2021, compared to a loss of $12 million, or $0.01 per share, a year earlier. Funds from operations more than doubled in the quarter to $2.64 billion, from $1.17 billion in the prior year.

"We believe that [fiscal third quarter 2021] could mark a turning point for shares of Suncor, which have significantly lagged the broader energy rally year-to-date," Raymond James analyst George Huang wrote in a note to clients on Thursday.

"Behind the 100 per cent increase in Suncor's dividend coming out of [fiscal third quarter 2021] is what we believe to be an underappreciated structural improvement story that is quietly driving a very attractive cash return profile for long-term oriented investors."

Huang notes Suncor shares have climbed 32 per cent year-to-date, well behind the iShares S&P/TSX Capped Energy Index ETF's (XEG.TO) 71 per cent jump over the same period. The exchange-traded fund holds a cross-section of Canadian oil patch firms, including Suncor.

Huang says Suncor's dividend hike is "backstopped by high-visibility cost reductions that the company will deliver in the next 12 months." He maintains an "Outperform" rating on Suncor shares, with a price target of $43.

The stock added 9.64 per cent on Thursday to $30.94 as at 11:22 a.m. ET.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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