5: Suncor Energy Inc. (USA) (NYSE:SU)
Percent of Warren Buffett’s Portfolio: 0.6%
Dividend Yield: 3.4% Forward P/E Ratio: N/A (as of 5/16/16)
Sector: Energy Industry: Integrated Oil
Dividend Growth Streak: 12 years
Suncor Energy Inc. (USA) (NYSE:SU) is an integrated oil company that is focused on developing Canada’s oil sands. Unlike conventional crude oil, oil sands is a rough mixture of bitumen, sand, clay, silts, and water that must be mined or heated underground in order for it to be processed.
Suncor was the first to produce crude oil from the oil sands of Alberta in the 1960s and has since grown to become the largest integrated oil business in Canada. As an integrated player, Suncor’s profits are somewhat balanced between upstream, midstream, and downstream operations, which provides some support to its cash flows.
Berkshire Hathaway began buying shares of Suncor in 2013 and subsequently increased its stake during the second half of 2015.
Warren Buffett’s team was likely attracted to Suncor because of its high quality asset base, strong balance sheet, and integrated energy model.
Since Suncor was the first to construct an oil sands plant nearly 50 years ago in Alberta, the company presumably had an advantage in understanding the resource base there.
This allowed Suncor to invest in the best land and infrastructure, amassing a high quality resource base that is virtually impossible for other operators in the region to replicate. Suncor’s current oil sands resource base has almost 40 years of production left at its current rates and enjoys a very low cost of production near $20 per barrel.
Berkshire Hathaway was also likely attracted to the company because of its integrated operations and impressive logistical network. Suncor owns thousands of kilometers of pipelines, more than 7,000 rail cars, and over 11 million barrels of storage capacity at terminals located across North America.
As a result, Suncor can get the best prices for its oil and has the flexibility to use its resources in mid- and downstream operations depending on market conditions. This flexibility helps Suncor generate superior cash flows compared to its peers and provides a bit of a hedge in the event that oil prices remain depressed.
Finally, Warren Buffett likes conservative management teams that put shareholders first and invest for the long term. Suncor had one of the best balance sheets going into the oil downturn, which allowed it to continue investing in growth projects and opportunistically acquire rivals at a discount. Suncor Energy Inc. (USA) (NYSE:SU) has certainly proven to be a disciplined capital allocator over time that focuses on the long haul.
Read More: Suncor: Warren Buffett’s Big Oil Bet
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6: Procter & Gamble Co (NYSE:PG)
Percent of Warren Buffett’s Portfolio: 0.02%
Dividend Yield: 3.3% Forward P/E Ratio: 22.4x (as of 5/16/16)
Sector: Consumer Staples Industry: Soap & Cleaning Preparations
Dividend Growth Streak: 59 years
Procter & Gamble Co (NYSE:PG) is one of the largest consumer packaged goods companies in the world with a large number of well-known brands across categories such as laundry detergent, health & beauty, and shaving.
Some of P&G’s major brands include Tide, Pampers, Charmin, Vicks, and Febreze.
Procter & Gamble is the definition of a blue-chip dividend stock. Warren Buffett’s position in the company resulted from his investment in Gillette back in 1989.
Procter & Gamble acquired Gillette in 2005, which converted Buffett’s Gillette ownership into P&G shares.
Buffett had gradually been reducing his stake in Procter & Gamble Co (NYSE:PG) over the last decade and announced anagreement in late 2014 to buy Duracell from P&G in exchange for his shares of P&G.
With the deal closing in 2016, Buffett’s P&G stake will be no more. However, Berkshire Hathaway likely wanted to own Duracell because of its strong brand recognition and market share (25%). It’s also worth noting that Duracell was part of P&G’s acquisition of Gillette, so Buffett had plenty of familiarity with the company already.
As technology continues to permeate every part of society, Buffett likely believes batteries will become increasingly important power sources with a long runway for demand growth.
