A Canadian Dividend Pick Down 13%: A Forever Hold

If you see that a stock has pulled back by over 13% in just a few days, even the best dividend stock might look like something you want to avoid owning. After all, nobody will keep holding onto shares of a stock they have invested in without wondering why share prices pulled back or if they should consider reallocating their funds to other investments.

Savvier investors try to determine why share prices fell to see whether the dividends will remain sustainable, and if it means they are getting a bargain by investing in the stock. This analysis helps seasoned investors avoid sinking money into an already sinking ship. 2026 has seen plenty of fluctuation in the energy sector since the US and Israel began a war with Iran in the Middle East and the latter closed the Strait of Hormuz, a critical chokepoint through which a fifth of the global crude transits.

Any development in the situation can send crude prices soaring or return them to more reasonable levels.

The risk in investing in energy stocks

When geopolitical factors beyond the industry’s control impact commodity prices, things can get interesting. Investing in energy stocks can seem appealing when crude prices rise. However, softening prices can lead to significant downturns in share prices. Fortunately, most blue-chip stocks in the Canadian energy sector pay dividends that can at least offset some of the losses.

Amid the ongoing crisis in the Middle East and confusing situation with supposed peace deals, the market is quite messy. Oil prices swing on demand, supply disruptions, geopolitics, and various other reasons, often within the space of a single day.

In a situation like this, why should anyone that is sound of mind invest in Canadian oil stocks?

The key factor here is quality. No company has the ability to consistently profit and soar on the stock market. Factors out of the industry’s control will always impact the cyclical market. This is where investing in high-quality stocks that are well-capitalized enough to navigate rough patches and emerge stronger on the other side comes in. In my books, Suncor Energy Inc. (TSX:SU) is one such energy stock.

Foolish takeaway

Suncor is one of the largest integrated energy companies in Canada. The giant in the oil and gas sector has a hand in every stage of the energy industry’s cycle, from production to selling it through Petro-Canada. The integrated business model gives Suncor more opportunities to profit than pure-play energy producers. Lower crude prices mean that it enjoys better margins in retail and refining operations. Higher prices mean its upstream operations are more profitable.

As of this writing, Suncor stock trades for $83.82 per share, and it is down by around 13% from its 52-week high. The downturn, despite the business generating significant cash flow, indicates that it might be a bargain at current levels.

Declining demand, decreased margins, and lower crude prices can put the firm’s cash flow under pressure. If you have the stomach to tolerate the risks tied to the fluctuations in energy prices, Suncor can be a good investment to consider.

The post A Canadian Dividend Pick Down 13%: A Forever Hold appeared first on The Motley Fool Canada.

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More reading

• Just Released: 5 Top Stocks to Buy in August
• Suncor Stock in 3 Years: Could This Dividend Giant Still Beat the TSX?
• 3 Canadian Blue-Chip Stocks to Hold Through 2026 and Beyond
• Enbridge vs. Suncor: The Dividend Pick I’d Own Through 2026
• 1 Canadian Dividend Stock Down About 14% to Buy and Hold Forever

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.