The Motley Fool

TFSA Investors: Time to Buy Canadian Natural Resources (TSX:CNQ)

Image source: Getty Images

Canadian Natural Resources Ltd. (TSX:CNQ)(NYSE:CNQ) reported first-quarter 2019 results that demonstrate why this stock is a top TFSA pick for exposure to the energy sector and for regular reliable dividend income and strong capital gains potential.

This $45 billion energy giant trades at a price-to-earnings ratio of 15 times this year’s consensus expected earnings, and at a price-to-cash flow of less than six times earnings, remaining attractively valued.

Right now, investor sentiment around the energy sector is poor, which isn’t a big surprise given the many issues that have plagued the sector.

So many quality stocks like CNQ are seeing a lack of interest, a lack of demand.

Here’s what the first-quarter results say about why this should change.

Oil prices significantly higher

This, we already know. But while oil prices have soared since December 2018, they are still down versus one year ago, and energy stocks reflect this.

CNQ stock is trading at around the same level as three years ago and down 18% versus one year ago. Cash flow from operations in 2014 was $8.4 billion. It was $10.1 billion in 2018.

Also, what strikes me about this energy stock’s price chart over the last few years is that it is relatively steady, while of course being backed up by its strong cash flows and dividend.

Cash flow party

While production was down sequentially due to the mandated production curtailments, Canadian Natural continued to impress with its cash flows.

First-quarter cash flow came in at $2.24 billion, 82% higher sequentially and only marginally lower than first quarter 2018, when oil prices were higher.

Recall that in the fourth quarter of 2018, the company generated $1.2 billion in cash flow, or $1.02 per share, despite the Canadian oil differential widening dramatically during the quarter.

Returning cash to shareholders

With 15 years of consecutive dividend increases behind it and a current dividend yield of almost 4%, Canadian Natural clearly has a strong track record of being a solid and reliable dividend-paying stock for TFSA investors.

In the first quarter of 2019, CNQ increased its dividend by 12%.

Another reflection of management’s confidence in its ability to continue to generate strong cash flows is the company’s continued buy back of its stock, repurchasing 6.65 million shares in the quarter, and 4.05 million shares already being repurchased in the second quarter.

Final thoughts

For TFSA investors, Canadian Natural is a top energy stock to own for its strong dividend yield, its strong track record and its upside to rising oil and gas prices.

When sentiment turns positive for the energy sector, Canadian Natural has big upside due to its top quality operations and its strong cash flow generating capability.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas owns shares of Canadian Natural Resources and CDN NATURAL RES.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.