The energy sector has been in the doghouse for years. First, pipeline constraints in Canada were causing problems. Then the pandemic hit. Demand proceeded to fall off a cliff. At the same time, an OPEC price war took place.
And throughout all of this, we had the negative backdrop. The energy industry is a polluter, and the world has awoken to this. This cannot go on much longer. So, the pressure is on. Big investment firms are shunning oil and gas. The sentiment stinks.
All of this has driven energy stocks down to lows. They’re bruised and battered. But recently, we have begun to see hope again. The sector has more life in it yet. And Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is the top stock to buy to take advantage of this.
An energy stock that is increasing capital expenditure plans for 2021
Canadian Natural Resources will spend more in 2021. In turn, this will lead to production and cash flow growth. Within this increased spending, natural gas will be of particular focus. Increased investment here will result in natural gas production growth of over 10%.
Natural gas has a bright future. Canadian Natural Resources is acting on it. This hydrocarbon will increasingly be the energy of choice. The transition to cleaner sources of energy is underway. Natural gas will be the key to bridge the gap as the world moves away from coal.
Canadian Natural Resources: A best-in-class energy stock with a 19% growth rate in dividends
Canadian Natural Resources is an oil and gas stock like no other. This company proves this every day. For example, its long-life assets are second to none. These assets enable Canadian Natural to generate consistent cash flows without much capital investment. This drives right down to the bottom line.
Therefore, CNQ stock’s dividend is quite reliable — something that is rare among oil and gas stocks. For example, Canadian Natural’s dividend grew an average annual rate of 19% in the last 15 years. Do you remember the volatility of the oil price during these years? It was pretty bad, with many oil and gas companies going under. So, this is an impressive feat — especially for an oil and gas stock.
Canadian Natural acquires in cyclical lows
Acquiring in cyclical lows is the secret ingredient to long-term prosperity. It is what allows companies to make massive returns in the long term. In August, Canadian Natural Resources acquired Painted Pony. Painted Pony was a quality natural gas producer that was trading at very depressed valuations. This means that Canadian Natural got this company on the cheap. The acquisition has strengthened CNQ’s natural gas position.
It is this culture of astute strategic decisions that sets CNQ apart. Also, it is the company’s operational and financial strength. For example, its strong free cash flow gives it flexibility. Its strong balance sheet puts it in the driver’s seat. These are qualities that investors should look for in stocks. This is another reason that CNQ stock is a top stock to buy.
Motley Fool: The bottom line
Canadian Natural Resources stock is not your regular energy stock. And this is what makes it a top stock to buy. It is a predictable business that creates long-term value. Because this energy stock withstands low oil price environments like a pro. And it goes even further than that. It acquires when others are forced to sell. This means that CNQ adds quality assets at bargain prices.
To a large extent, Canadian Natural Resources operates as investors should operate. For example, the company remains patient and disciplined. Also, it buys when others are forced to sell.
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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.