Institution and retail investor goal don't necessarily alignI just reviewed today's conversation on the thread.
It is nice to see differences of opinion expressed with respect and courtesy. Kudos to those that take the time to share their thoughts and seek out the opinions of others.
I thought it might be useful for some to understand the reality of being a retail investor.
While it behooves companies to acknowlege retail investors, it is mgmt's job to do what is best for the company. While mgmt's goal may align with those of retail investors, they often don't because retail investors either don't have the understanding or patience required when it comes to what is best for the company.
What is best for a company changes over time. In the early stages, companies have to cater to retail investors because they typically don't have access to institutional funding.
As a public company matures and institutional support is garnered, institutions evntually take control of the company and that is the case with Suncor.
The decision makers behind institutions are typically trained and sophisiticated as investors. They understand the importance of making long term decisions for both the safety and growth of the companies.
Different funds (even those controlled within the same company) have different objectives. A fund that invests in a company like Suncor at this point will have a long term perspective and will be interested in both yield and growth. It would be easy for the fund to obtain a higher yield with a company like ENB or higher growth potential with a renewable such as BEP units.
Today, interest groups are exerting more and more pressure on funds to meet certain objectives. In the past, funds pretty much only had to deal with risk and return issues. Today, the requirements are much more complicated.
What makes SU so interesting as an investment these days is the dichotomy of above average expected investment returns (met nicely by SU's yield and growth prospects) versus the pressure exerted by fund investors to rid themselves of anything oil related.
Institutions primary investment objective is safety. That means that institutional investors will typically attach greater value to a strong balance sheet than retail investors. Institutions are also
While everybody likes a nice dividend yield, institutions are likely to be in a better position than retail investors to understand and the steer companies on how to direct the use of funds.
If you don't think any of this makes sense, just ask yourself why the oil industry has recently made the incredibly costly and inefficient for years to come "move to green". Companies have to kowtow to whatever the institutions demand, even if they are past the stage of needing institutions to provide a source of equity.
Fortunately, all is not lost for companies like Suncor. While many institutions want to get as far away as possible from the oil industry, others prioritize returns. Birkshire Hathaway didn't have a problem buying Suncor shares or picking up Dominion Energy or even buying trains to haul oil. In 2019, when ENB decided to sell $8 billion of assets to placate the street, they were able to sell those assets to private equity firms at a premium.
In the past year, selling oil assets has been a lot more tricky and a number of multi-national oil companies made the decision to shutter assets due to a lack of buyers. However, the pendulum has already begun to swing the other way once again. Goldman Sachs is calling for $75 Brent in Q2 and $80 Brent in Q3. The world is waking up to the fact that realizing the green dream is one to two generations away and oil demand is increasing rapidly as the world begins to extricate itself from the pandemic.
It is clear to see that the composition of Suncor ownership is in transition. Enbridge facilitated the rapid transition. Suncor has not been as proactive so we could easily have a few more quarters of confusion.
Big money is swooping in to buy out the shares being supplied by the go-green exodus. The buyers know that the pressure is on the sellers. The buyers have deep pockets and long term goals which don't include a higher dividend that will drive up the share price.
Retail investors get impatient. Institutional investors rely upon the impatience of retail investors.