The energy sector plays a critical role in the global economy by providing the fuel and electricity necessary for economic activities. However, due to the maturity and debt-intensity of this sector, energy stocks have not performed as well as the broader markets in the past two decades.
This analysis focuses on two major companies in the TSX energy sector, Suncor Energy (TSX:SU) and Cenovus Energy (TSX:CVE), to determine which stock is a better investment option at the present time.
Cenovus Energy, with a market capitalization of $43 billion, is involved in the development, production, and marketing of crude oil, natural gas liquids, and natural gas. Despite a 16.6% cumulative return over the past 15 years, the company’s stock has not performed as well as the TSX index, which has seen returns of 244%. Cenovus’s strong financial performance in the second quarter, with an operating profit of $2.9 billion and a commitment to distributing 100% of its free cash flow to shareholders, indicates potential for future growth.
On the other hand, Suncor Energy, with a market capitalization of $66 billion, has returned 320% to shareholders in dividend-adjusted gains since October 2004. The company’s focus on optimizing costs and strong performance in the second quarter, with adjusted funds from operations of $3.4 billion, demonstrates its potential for growth and profitability.
Both Cenovus Energy and Suncor Energy offer attractive dividend yields, but their high-risk nature due to the cyclical nature of the energy sector requires caution. Investors looking to diversify their portfolio with exposure to these energy giants may consider investing in a low-cost TSX index exchange-traded fund to mitigate risk.
