1 Cheap TSX Dividend Stock I’ll Buy Now and Hold Forever

Canadian Natural Resources is a cheap TSX dividend stock that has the potential to deliver outsized gains to long-term investors.

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Investing in blue-chip, undervalued dividend stocks provides you the opportunity to benefit from recurring dividend income as well as capital gains. Typically, value stocks that trade below their intrinsic multiple can potentially deliver outsized gains to shareholders.

Here is one such cheap TSX dividend stock I’ll buy now and hold forever.

Why is Canadian Natural Resources stock a buy right now?

One of the largest companies on the TSX, Canadian Natural Resources (TSX:CNQ) is trading at a market cap of $82.6 billion and an enterprise value of $96 billion. Lower oil prices in recent months have dragged CNQ stock 13% from all-time highs, allowing you to buy the dip. But this pullback has also driven the dividend yield of Canadian Natural Resources to 4.7%, which is quite attractive.

Despite a decline in oil prices, CNQ reported a free cash flow of $1.4 billion (after dividends) and net base capital expenditures of $1.1 billion in the first quarter (Q1) of 2023. The company emphasized, “With ample liquidity on our balance sheet, we can add production with minimal capital while generating significant returns on capital and maximizing shareholder value.”

CNQ’s adjusted net earnings in Q1 stood at $1.9 billion with an adjusted funds flow of $3.4 billion, allowing the oil giant to return $2.8 billion to shareholders via buybacks and dividends in the first four months of 2023.

Canadian Natural Resources is part of a highly cyclical industry. Despite massive fluctuations in oil prices, it has increased dividends by 20% annually in the last two decades, showcasing the resiliency of its financials. In fact, CNQ was among the few oil companies to increase dividends even when crude oil prices fell off a cliff in 2020.

In 2022, CNQ increased dividends twice by 45% and paid shareholders a special dividend for a combined total of $4.9 billion, as oil prices surged to multi-year highs.  

It now pays investors a quarterly dividend of $0.90 per share, compared to a dividend of $0.85 per share in the year-ago period. CNQ has increased dividends for 23 consecutive years, which is among the longest streaks for TSX companies.

Canadian Natural Resources now aims to distribute 100% of free cash flow once its net debt reaches below $10 billion. It ended 2022 with a net debt of $10.5 billion.

Its long-life, low-decline assets, and ability to generate sustainable cash flows throughout the commodity price cycle make CNQ stock an attractive bet for those looking to gain exposure to the energy sector.

CNQ stock is up 1,880% since May 2003

After adjusting for dividends, CNQ stock has returned an emphatic 1,880% to shareholders since May 2023. Despite these outsized gains, CNQ stock is priced at 10 times forward earnings, which is quite cheap. Analysts expect its adjusted earnings to improve from $7.74 per share in 2023 to $8.79 per share in 2024, which supports further dividend increases.

Armed with an investment-grade balance sheet, Canadian Natural Resources ended Q1 with $6.1 billion in liquidity, which can be used to reinvest in organic growth as well as pursue accretive acquisitions.

Due to its robust financials, improving balance sheet, and widening dividend payouts, analysts remain bullish on CNQ stock and expect it to gain over 21% in the next 12 months.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources. The Motley Fool has a disclosure policy.

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