Dividend Investors: Will This Energy Stock Cut Its 6.6% Dividend Yield?

Despite the declining year-over-year revenues and earnings, Canadian Natural Resources Ltd. (TSX:CNQ)(NYSE:CNQ) is committed to maintaining its dividend.

| More on:
Mature financial advisor showing report to young couple for their investment

Image source: Getty Images

While other companies are slashing dividends, Canadian Natural Resources Ltd. (TSX:CNQ)(NYSE:CNQ) is holding their dividend steady. At the stock price of $25.35 as of this writing, the dividend yield is a robust 6.62%.

First-quarter results

As expected, the decimation of the oil and gas industry weighed heavily on the company’s first quarter results. Canadian Natural Resources reported an adjusted loss per share of $.19. In the same period last year, the company posted an adjusted profit of $.53 per share. Total revenue dropped to $3.36 billion.

For the quarter, Canadian Natural reported production of 1,178,752 barrels of oil equivalent per day (BOE/d), up 13.9% from the same period in 2019. The company’s oil and natural gas liquids (NGLs) output increased to 938,676 barrels per day (Bbl/d) from 783,512 Bbl/d a year ago.

Good news for investors

Despite the declining year-over-year revenues and earnings, investors liked what they heard regarding the company’s commitment to continuing its dividend. Shares in the company have rallied significantly from their March low of $9.80.

Canadian Natural returned $444 million in dividends and $271 in stock buybacks. At the end of the quarter, the company’s free cash flow totaled $55 million, after adjusting for capital expenditures and dividend payments.

Capital expenditures

The company’s total expenses increased to $5.9 billion from $4 billion the previous year.

The company cut its 2020 capital expenditures by an additional $280 million, bringing the total estimated capex for 2020 to approximately $2.7 billion. Due to the uncertainties surrounding the oil and gas industry, this number has been slashed $1.4 billion from the company’s original 2020 outlook.

Similar to most companies in the energy sector, Canadian Natural is highly leveraged to the price of oil. The company’s debt from the previous quarter rose from $18.6 billion to $19.9 billion. As of March 31, the company had $1.1 billion in cash and cash equivalents.

Commitment to investors

Canadian Natural is committed to maintaining its dividend payout to investors, while other companies like Suncor Energy (TSX:SU)(NYSE:SU) have cut their dividend.

Suncor’s operating costs are higher than Canadian Natural. In its last quarter, Suncor took a write-down of approximately $2.8 billion, related to lower forecast oil prices for production from its Fort Hills oil sands mine in northern Alberta.

This write-down affected Suncor’s bottom line and was part of the reason the company was forced to cut its dividend.

So far, Canadian Natural has not charged off any assets and has been able to maintain the dividend.

The bottom line

This is not the first time that the oil and gas industry has been in trouble. Keep in mind that this industry is very cyclical, even in the best of times. The oil war and the COVID-19 global pandemic have added pressure on the industry.

Canadian Natural, however, has demonstrated its ability to survive even in the worst of times, as evidenced by the company’s 20-year history of dividend increases.

While investors may be tempted by the 6.6% dividend yield and the company’s commitment to maintain its dividend, investors should recognize that the price of oil will likely continue its volatility.

If the price of crude goes below $20, shares of Canadian Natural could dip again, perhaps into the mid-teens.

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 Cindy Dye has no position in any of the stocks mentioned.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »