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Suncor Energy: A Cheap But Risky Dividend Play For The COVID-19 Recovery

Published Wed, 23 Dec 2020 17:39:34 -0500 on Seeking Alpha

Seeking AlphaDividend Ideas | Basic Materials | CanadaSuncor Energy: A Cheap But Risky Dividend Play For The COVID-19 RecoveryDec. 23, 2020 5:39 PM ET|| About: Suncor Energy Inc. (SU), Includes: ENB, IMOby: Growth at a Good PriceGrowth at a Good Price Growth, Growth At Reasonable Price, long-term horizon, Long OnlySummarySuncor Energy's stock is highly undervalued by some metrics, trading for less than book value.
However, the stock faces a number of risk factors pertaining to the COVID-19 pandemic and climate change.
Suncor does have upside in the event of a swift economic recovery, but faces a number of headwinds that could jeopardize its business.
In this article I make the case that Suncor is a "hold," because it has potential upside post-pandemic, but also significant risk.
Suncor Energy Inc (SU) has been a major casualty of the COVID-19 recession. Down 50% for the year as of this writing, it got hit hard by weak demand for oil in the early months of the pandemic. In April, oil prices were under so much pressure that WTI futures at one point turned negative. Since then, oil has recovered, but Suncor's stock hasn't fared as well. Although SU is way up from its March lows, it's still down for those who bought at the start of the year.
Interestingly enough, this situation serves as the background for a mildly bullish thesis on SU stock. In 2020, Suncor has been beaten down so severely that it trades for less than book value. According to Seeking Alpha data, SU had a 0.94 price-to-book ratio as of Dec. 22. This means that when you buy SU stock, you're technically paying less than the value of its assets, net of debt. That could signal an undervalued stock. On the other hand, SU faces a number of risk factors that could damage its financial position--particularly in the event that the COVID-19 pandemic goes on longer than expected.
In this article, I will develop a neutral thesis on Suncor Energy, arguing that the stock has potential upside... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
ENBRIDGE 34.70   19.7 1.76 2.21 6.38
IMPERIAL OIL 26.59   0.0 0.00 0.66 2.49


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