Better Buy for Dividend Income: Canadian Natural Resources Stock or Royal Bank Stock?

The best dividend stocks don’t always have the highest yields.

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Dividend investors are looking at the rebound in oil prices and the plunge in bank stocks for opportunities to add top TSX dividend stocks to their self-directed retirement portfolios. Canadian Natural Resources (TSX:CNQ) and Royal Bank (TSX:RY) are leaders in their respective industries and have long track records of dividend growth.

Canadian Natural Resources

CNRL is Canada’s largest energy company with a current market capitalization near $90 billion. The stock trades close to $82 per share at the time of writing. That’s up from $68 last month, but still off the 2022 high around $88.

The recent surge has come on the back of a new rally in the price of oil triggered by the surprise decision by the Organization of Petroleum Exporting Countries to reduce supplies at a time when global fuel demand continues to recover from the pandemic. Airlines are ramping up capacity to meet soaring travel demand heading into the summer, and commuters are increasingly returning to the office.

CNRL is known for its oil production operations that span the full product spectrum. The company has oil sands, conventional heavy oil, conventional light oil, and offshore oil assets. CNRL is also a major natural gas producer with vast untapped land positions in Canada.

The diverse hydrocarbon portfolio is one reason CNRL has managed to maintain steady dividend growth, even during periods when oil and gas prices plunged. In fact, the board recently increased the dividend for the 23rd consecutive year with a compound annual growth rate of 21% over that timeframe.

At the time of writing, the stock provides a 4.4% yield. Other stocks offer higher yields right now, but CNRL also pays out bonus dividends when it has excess cash. The board gave investors a special payout of $1.50 per share in August last year on top of the regular distribution.

Royal Bank

Royal Bank is Canada’s largest financial institution with a market capitalization of $182 billion. The firm also ranks among the top 10 banks in the world based on this metric.

Royal Bank has a balanced revenue stream that comes from retail banking, commercial banking, wealth management, capital markets, insurance, and investor and treasury services. The company operates in more than 30 countries and continues to make strategic acquisitions to drive growth. Royal Bank spent $2.4 billion last year to buy U.K.-based wealth management firm Brewin Dolphin. The deal makes Royal Bank a major player in the wealth management segment in the U.K. and Ireland.

At home, Royal Bank is in the process of closing its $13.5 billion purchase of HSBC Canada. The deal brings attractive commercial and retail banking clients with strong global connections.

Royal Bank’s share price is holding up better than some of its peers. Investors are turning to the large banks for safety amid the recent turmoil in the industry caused by the failure of two banks in the United States and another one in Europe.

The stock trades for $132 at the time of writing compared to the 12-month high around $140. Royal Bank pays a quarterly dividend of $1.32 per share. In 2003, the adjusted quarterly payout was $0.20 per share. Investors who buy the stock at the time of writing can get a 4% yield.

Is one a better pick today?

CNRL and Royal Bank pay solid dividends that should continue to grow. Oil bulls who can handle periods of volatility in the share price might want to make CNRL the first choice. Otherwise, Royal Bank should be a safe long-term pick that can be an anchor position in a diversified portfolio.

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.

The Motley Fool recommends Canadian Natural Resources. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

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