There’s been so much noise about electric vehicles and their stocks lately that we forget the vast majority of our vehicles still run on combustion engines. Yes, EV is the future. But combustion engines with good ol’ gas fuels are what will drive us to that future. And that is why we believe Sunoco LP (NYSE: SUN) stock will continue to do just fine until that future arrives.
Source: Andrea Piacquadio
Sunoco is a retailer of motor fuel in the US. The company gets its fuel from independent refiners and oil companies; and sells them to commercial filling stations, independent dealers, and distributors. Apart from its motor fuel business, Sunoco also dabbles in real estate in Hawaii.
Business-wise, Sunoco looks solid. A dividend yield of 7.65% and a payout ratio of 62% is backed by $100 million in net income in its most recent Q4 FY2021 report. This figure was 20% more than it earned at the same time in the previous year. The fuel retailer also recorded a robust adjusted EBITDA of $754 million for the FY2021. Other financial figures for the quarter and the year also looked good.
Although this dividend has only had a history that spans 9 years, the company’s business resilience gives investors something to be confident about. For instance, Sunoco’s industry was one of those that were most hit with the pandemic, which lead to the 35% YoY revenue dip for the fuel retailer that year. What was surprising, though, was how the company still managed to be profitable.
Now that the economy is opening up, one can only expect things to get better for the company, which is expected to have more positive effects on the dividend.
The only potential risk for Sunoco is the transition to sustainable energy sources. But we don’t expect that to threaten Sunoco yet, as the transition is still in its infancy.
We believe Sunoco is a solid stock for its dividend. And considering that the stock is undervalued, with a PE ratio of 8.1 that lags the industry’s 16, now is the best time to buy Sunoco for value and for dividend.
Technical Analysis
Things are looking just great for SUN stock at the moment. It broke out of the $41.5 – $43 resistance level and recently retested it as a support. If this support level holds, it could be the next step in the stock’s rise to heights it has only been in 2014 and 2015.
In addition to the support level, a strong bullish trendline also underlines the stock price, giving SUN’s bullish trend even more credibility.
We believe now is the time to buy Sunoco stock.
