A rising tide may lift all ships, but not all ships are carrying the same cargo. Two companies looking to benefit from crude oil prices that are trending upward are retail and wholesale fuels distributor Sunoco LP (NYSE:SUN) and the much larger Canadian oil sands developer Suncor Energy (NYSE:SU). Both pay dividends yielding over 4% and generate healthy amounts of operating cash flow per share. But there are more differences than similarities for these two stocks. 

One is a master limited partnership that benefits from a unique tax structure, which allows it to pay a gaudy dividend yielding over 11%. However, that also means its parent company can dump assets and debt onto the balance sheet, and it's been more of the latter recently. Meanwhile, masterful operating efficiency in 2016 allowed Suncor Energy to enter this year with plenty of momentum -- and raise its dividend. But it's also developing one of the most expensive sources of oil in the world: Canadian oil sands. 

That raises the question: While both will benefit from higher energy prices, which stock is the better buy? 

Two businessmen engaged in a tug-of-war.

Image source: Getty Images.

Going head-to-head

Sunoco LP is now focused on a "retail-first" strategy, which generates the lion's share of its earnings and cash flow. Merchandise and fuel sales from retail locations generated 69% of gross profit in 2015, the last full year of earnings results. An expansion of larger, more open floor plans that generate up to 300% more operating cash flow should allow for continued margin expansion regardless of crude oil prices.    

Of course, the MLP has much to gain from higher energy prices. Fuel sold at retail locations generated $0.235 per gallon in gross profit, while fuel sold through wholesale distribution generated a fixed $0.10 per gallon. Higher selling prices would be a big boon for the company and investors, especially regarding management's plans to deleverage the balance sheet. 

Sunoco LP's maximum leverage ratio will peak at 6.75 this year, but gradually fall to 5.50 by the first quarter of 2019. The problem is those levels are still relatively high. Worse, its parent company, Energy Transfer Partners, is currently immersed in a giant merger, which means it's less likely or willing to help the MLP reach its goals. Debt levels remain the biggest risk to investors for the stock.

By comparison, Suncor Energy's balance sheet is much healthier. The company ended 2016 with a debt-to-assets ratio of just 19.5%, compared to 49.8% for Sunoco LP. While depressed crude oil prices have led to dramatic reductions in revenue and profits in the last two years, management has successfully cut costs, as many of its peers were also forced to do.  

Those successful efforts have significantly boosted operating efficiency. Production soared from 582,900 barrels per day in the fourth quarter of 2015 to 738,500 bpd in the most recent quarter thanks to acquiring a larger stake in Syncrude.. Quarterly operating cash flow enjoyed a year-over-year increase of 82%, from $0.69 per share to $1.08 per share, admittedly helped by rising oil prices in late 2016. Suncor Energy boosted its dividend payout 10% as a result.

Both companies are in the process of repositioning themselves to deliver value to shareholders and increase their ability to respond to various market conditions, but they've performed about the same in the last three-year period.

SUN Total Return Price Chart

SUN Total Return Price data by YCharts.

How are companies thinking about the future? Sunoco LP is scheduled to hold an auction this spring to sell non-core real estate assets and raise funds that will be used to pay down its debt. Aside from that, there won't be much excitement for investors -- not necessarily a bad thing -- although uncertainty about its parent company's pending merger could lead to increased volatility.

Meanwhile, Suncor Energy released strong guidance for 2017. The company expects production of between 680,000 bpd to 720,000 bpd, which would represent a significant increase from production of 622,000 bpd in 2016. Better yet, it is projecting higher average selling prices for the year, which should result in much greater revenue and profits. That could allow operating cash flow to increase for the first time since 2013, although more efficient operations have allowed it to do more with less.  

The winner is...

The better stock to buy in this matchup is Suncor Energy. It's in a better position to capitalize on rising energy prices and, likewise, has more to gain. The company has a strong balance sheet and operating cash flow, which will only get stronger as production increases. I still think there are good reasons Sunoco LP stock could rise, but its debt levels and uncertainty from its parent company pose additional risks that its challenger simply doesn't have. Therefore, Suncor Energy is the better buy for investors.