For investors looking for a dependable source of passive income, a methodical screening strategy can help find companies that provide more than a high current yield. A careful process involves selecting stocks that join a firm dedication to shareholder distributions with basic financial strength. This technique emphasizes the ChartMill Dividend Rating to locate high-quality dividend payers, while also demanding a minimum ChartMill Profitability Rating and ChartMill Health Rating. This makes certain the chosen firms are not only good payers but also operationally solid enough to maintain and possibly increase their dividends. The aim is to sidestep value traps, companies with excessively high yields frequently caused by a falling stock price, and to concentrate on financially strong businesses.
Suncor Energy Inc (NYSE:SU) appears as a candidate from this type of screen, displaying a profile that matches the central principles of defensive dividend investing.
Dividend Profile: A Dependable Payer with Potential for Increase
The main attraction for income-oriented investors is found in Suncor's dividend traits, which are examined in its fundamental analysis report. The firm's 7 out of 10 Dividend Rating shows a measured review of yield, history, and durability.
- Good Yield: Suncor presently provides a dividend yield of 4.11%. This is appealing relative to the S&P 500 average (about 1.88%) and is also a bit higher than the average for similar firms in Oil, Gas & Consumable Fuels.
- Long History: Consistency is vital for dividend investors. Suncor has paid dividends for at least 10 straight years, offering a dependable history that indicates a company priority of giving capital back to shareholders.
- Durable Payout: The durability of a dividend is likely more critical than its present amount. Suncor's payout ratio, the part of earnings given as dividends, is 53.29%. While this is elevated, it is normally viewed as acceptable, particularly when earnings are projected to rise. The report states that Suncor's earnings are increasing more quickly than its dividend, which helps the argument for the payout's durability.
Supporting Fundamentals: Profitability and Financial Condition
A high dividend is only as good as the company's capacity to keep it. This is where the screening rules for "acceptable profitability and health" show their value, and Suncor satisfies these standards.
Profitability (Rating: 6/10): Suncor's profitability is graded as medium, but the basic numbers show a company that is fundamentally earning money. It has been profitable in four of the last five years and has reliably produced positive operating cash flow. Important efficiency measures like Return on Assets (5.88%) and Return on Equity (11.65%) put it in the top part of its industry. Also, its operating margin has displayed positive improvement in recent years, signifying better operational management.
Financial Health (Rating: 7/10): This is a strong area for Suncor. A good health rating is important for dividend investors, as it shows the company can endure economic declines without threatening its payout. Suncor's balance sheet displays clear strength:
- Minimal Debt: A Debt-to-Equity ratio of 0.27 shows very little dependence on debt financing, which lowers risk in times of increasing interest rates or sector instability.
- Good Cash Flow Coverage: A very good Debt-to-Free-Cash-Flow ratio of 1.80 means Suncor could pay off all its debt with under two years of cash flow, indicating significant financial adaptability.
- Actions Favorable to Shareholders: The company has been lowering its count of shares outstanding, an action that can raise earnings per share and, consequently, help future dividend increase on a per-share basis.
Valuation and Growth Background
The screening method does not directly aim for growth, but knowing a company's valuation and growth outlook gives useful background. Suncor is priced fairly, with a Price-to-Earnings ratio of 12.46, which is lower than both the wider market and most of its industry peers. This implies the present stock price, and therefore the appealing 4.11% yield, is not founded on speculative excitement.
Growth is the area where Suncor displays more average results, with a rating of 3 out of 10. While past revenue and earnings per share have increased over a long period, recent yearly results have been inconsistent, and future revenue projections are steady to a bit negative. For a dividend investor, this highlights that Suncor is mainly an income and value opportunity, not a high-growth investment. The steady, cash-producing character of its integrated energy operations is what backs the dividend.
Conclusion
For investors using a screen that emphasizes dividend quality together with financial sturdiness, Suncor Energy offers a strong argument. It gives a much higher-than-average yield supported by a ten-year payment record and a durable payout ratio. Importantly, this dividend is backed by a profitable operation and, especially, a very solid balance sheet with little debt and strong cash flow. This pairing of a high Dividend Rating with acceptable Profitability and good Health Ratings fits a cautious dividend investment approach centered on durability and risk control.
Suncor is one of multiple companies that satisfy these methodical standards. Investors interested in examining other possible candidates from this "Best Dividend" screen can see the complete list of outcomes here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
