Buffett retained its holdings in Suncor Energy (TSX:SU)(NYSE:SU). He purchased additional five million shares of the oil giant.
The one thing Buffett likes about Suncor is its long-lived assets — oilfields, which have an average life of 26 years. Suncor has an upper hand with stable cash flows and high dividends. It has been paying dividends since 1992 and steadily increasing them since 2008.
Although many analysts say that oil companies’ heydays are over and renewable energy will replace oil, that won’t happen for the next two decades. Till that time, it will continue to pay dividends.
Suncor has cut dividends by 55%, but investors have penalized the stock for it. The stock is down 30% from the date dividend cuts were announced, thereby increasing its dividend yield above 5%.
The oil demand will return when people start traveling again and factories start production in full swing. In the best-case scenario, Suncor would continue to pay the current dividend per share, and its stock would return to the pre-pandemic level in five years. It will give you $62,725 ($12,725 in dividends and $50,000 in capital appreciation) income on a $50,000 investment.
In the worst-case scenario, Suncor would acquire smaller oil companies or get acquired by a bigger fish. In both cases, investors would stand to win.
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