Though these two belong to distinct sectors, each are dividend bigwigs and provide juicy yields. Canada’s second-biggest vitality firm by market cap Suncor Vitality (TSX:SU) is the nation’s largest oil sands producer, whereas Toronto-Dominion Financial institution (TSX:TD) is the second-biggest financial institution.

Which is healthier: TD inventory or SU inventory?

Undoubtedly, there was a renewed curiosity in dividend shares this yr, given the elevated uncertainty within the markets. Whereas unstable markets nonetheless pose a big capital erosion danger for 2023, much less unstable shares with steady dividend profiles will possible be within the limelight.

But when an income-seeking investor desires to decide on between Suncor or TD Financial institution inventory, how can she proceed?

Each provide a good dividend yield of 4.5% and have a protracted payout historical past. By way of whole returns, TD inventory has returned 35%, whereas Suncor inventory has returned 26% within the final 5 years.

Vitality sector versus banking?

In relation to vitality investing, exploration and manufacturing shares like Suncor have a powerful correlation with unstable oil costs. It makes the sector all of the extra unsure with little long-term earnings visibility.

Within the case of Suncor, the corporate has seen document income in the previous few years. For 2022, Suncor Vitality reported whole free money flows of $10.5 billion, marking a good-looking 45% improve yr over yr. And never simply Suncor, virtually all North American energy-producing firms have seen superior monetary progress not too long ago. And this resulted in strong dividend progress and shareholder worth.

How Suncor carried out not too long ago

Suncor gave away 29% of its earnings as dividends final yr, indicating a strong potential for dividend progress. Quite the opposite, its payout ratio got here in at 91% in 2019, reflecting its unstable earnings as a consequence of its publicity to grease costs.

Larger manufacturing in a powerful worth surroundings will possible gas Suncor Vitality’s steep progress this yr as nicely. So, buyers can anticipate its juicy dividends and capital appreciation based mostly on buybacks will proceed to create worth.

Nonetheless, Suncor Vitality is a reputation that buyers must be extra cautious about. It has underperformed TSX vitality friends in the previous few years as a consequence of its operational woes and employee deaths. Even when it has been seeing good-looking monetary progress in the previous few years, it doesn’t take lengthy to show the tables within the vitality sector.

The oil sands producer trimmed shareholder payouts by 35% through the pandemic as money retention grew to become mandatory. Although it reinstated or reasonably greater than doubled it final yr, this highlights the unsure nature of the vitality firm’s money flows.

Toronto-Dominion Financial institution: A high Canadian banking inventory

However, Toronto-Dominion Financial institution can also be a cyclical identify and has a constructive correlation with broader financial cycles. Nonetheless, in my opinion, it’s a comparatively extra steady identify from a dividend perspective.

Its sturdy credit score profile, scale, and presence south of the border will possible drive steady earnings progress in the long run. Notably, TD’s payout ratio remained steady at round 35%–40% within the final 10 years.

Financial institution shares may proceed to commerce weak within the short-to-medium time period as a consequence of an anticipated contagion impact after final week’s financial institution closures. On the similar time, vitality shares like Suncor are anticipated to commerce greater as a consequence of their earnings progress visibility and strengthening steadiness sheets.

However in terms of passive earnings investing, buyers ought to have a long-term horizon, whereby stability issues extra. TD inventory appears nicely positioned on that entrance in comparison with Suncor Vitality.