Investing in quality dividend stocks allows you to create a passive stream of recurring income. There are several dividend-paying stocks on the TSX, but just a handful of them are solid long-term buys. It’s essential to identify companies that thrive across economic cycles, allowing them to report consistent earnings over time.
The ideal dividend stock is one which has a low payout ratio and offers investors a tasty dividend yield. Further, the company should increase its earnings at a consistent pace, resulting in annual dividend hikes.
One such TSX dividend stock is Canadian Natural Resources (TSX:CNQ). Let’s see why.
What does Canadian Natural Resources do?
A company operating in the energy sector, Canadian Natural Resources is a TSX giant. Despite the cyclicality in the oil and gas industry, CNQ stock has returned a staggering 2,000% to investors in dividend-adjusted gains.
Canadian Natural Resources explores, acquires, produces, and sells crude oil, natural gas, and natural gas liquids. Its midstream assets include two pipeline systems and a 50% working interest in an 84-megawatt cogeneration plant. The company operates in Canada, the United Kingdom, and offshore Africa.
The diversity of CNQ’s cash-generating assets and a low-decline rate make it a top TSX stock to own in 2023.
A look at the dividend yield of CNQ stock
Last year, Canadian Natural Resources increased its quarterly dividends by 45% to $0.85 per share due to rising oil prices. It increased dividends by another 6% to $0.90 per share in 2023 due to its strong balance sheet and solid business model. Right now, CNQ stock has a forward yield of 4.5% Canadian Natural Resources is a dividend giant and has increased its payouts by 21% annually in the last 23 years.
The energy heavyweight has maintained robust financials, allowing it to reduce net debt by $3.4 billion in 2022, ending the year with a net debt of $10.5 billion. In the last two years, an inflationary environment allowed CNQ to register enviable profits, enabling it to reduce net debt by almost $11 billion.
In the last 12 months, Canadian Natural Resources allocated 50% of free cash flow towards reducing its debt and the rest towards share repurchases and dividends. Once its net debt is below $10 billion, CNQ will return 100% of its free cash flow to shareholders.
Canadian Natural Resources has estimated its capital expenditures at $5.2 billion in 2023, which should expand its asset base and drive dividend payouts higher. The company also forecasts to increase annual production by 6% to 70,000 barrels of oil equivalent per day compared to 2022.
Further, CNQ stock is priced at ten times forward earnings, which is very cheap. Analysts remain bullish and expect CNQ shares to surge over 10% in the next 12 months.
The Foolish takeaway
To earn $1,000 per month in monthly dividends or 3,000 in quarterly dividends, investors need to buy 3,334 shares of Canadian Natural Resources. At its current price, the total investment will amount to almost $265,000, which is quite steep for a majority of TSX investors.
You need to identify similar stocks that are fundamentally strong and create a diversified portfolio of quality companies that offer you attractive dividend yields.