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The Top Dividend Stock to Buy Now for Big Upside and Income

My colleague, Christopher Liew, kindly brought to our attention the top Canadian stock holdings of the Canada Pension Plan Investment Board (CPPIB).

Recall that the CPPIB is a professional investment management team that invests on behalf of 20 million Canadian contributors and beneficiaries. Naturally, it has a long-term investment view, which is what we focus on here at the Fool.

Why Canadian Natural Resources is absolutely attractive!

One specific top holding that caught my attention was Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ). It was the second-largest holding in CPPIB’s Canadian stock portfolio at the end of the first quarter. At the time, it had 28,797 shares of the stock, which equates to roughly $938 million at the recent quotation of $32.57 per share.

Notably, Canadian Natural Resources just bought back $632 million worth of common stock at an average cost of $36.95 per share in the first half of the year. This means that investors like you and me can grab the stock at a 12% discount from that price.

In fact, according to the analysts’ average target of $46.30 per share, CNQ stock is an incredible value, being priced at a discount of approximately 30%, which also implies upside potential of 42%.

A big dividend that adds to returns

You can’t control when the stock will go up. However, you can enjoy the safe 4.6% yield that CNQ stock provides while you wait for price appreciation.

CNQ Dividend Yield (TTM) Chart

CNQ Dividend Yield (TTM) data by YCharts.

Canadian Natural Resources’s yield is near an all-time high thanks to years of dividend increases and a roughly 30% correction in the stock price.

CNQ has increased its dividend for 18 consecutive years with three-, five-, and 10-year dividend-growth rates of 13.4.%, 18.4%, and 21%, respectively. Its most recent dividend hike was 11.9% in Q1.

You can be reassured that the dividend is safe. In the trailing 12 months, CNQ generated more than $4.6 billion of free cash flow, but it only paid out 36% of it as dividends.

Investing for growth

In the first half of the year, CNQ more than doubled its investment, investing nearly $5.5 billion compared to $2.5 billion year over year.

Given that the oil and gas industry is closer to a trough than a peak of a cycle, it’s a good time to invest for the long term. CNQ is one of the few large-cap companies that can do so while maintaining a strong balance sheet.

Foolish takeaway

The North American stock markets are near all-time highs, so bargains may be difficult to find. Canadian Natural Resources stock could be a great buy after correcting meaningfully like many other energy stocks. Not only does CNQ stock offer massive upside potential of +40% but it also provides a big and safe yield of 4.6% for the wait.

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Fool contributor Kay Ng owns shares of Canadian Natural Resources.

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