The Canadian government introduced the Canada Pension Plan, or CPP, to replace a portion of your income in retirement. The average age to begin receiving the taxable retirement benefit is 65. However, you can receive the payout as early as 60 or delay it until you are 70.
In 2024, the maximum monthly amount a CPP pensioner can receive is $1,346.60, while the average amount stands at $758.32. Now, the CPP reduces by 0.6% each month for those receiving the pension before 65. It suggests the CPP will reduce by 36% for an individual beginning the payment at 60. So, the average CPP payment for a 60-year-old in 2024 stands at $485.
We can see that just relying on the CPP to lead a comfortable life in retirement is not enough, as the average monthly living expenses are well over $1,000 in Canada. Hence, it’s crucial for Canadians to supplement their CPP with multiple sources of income.
A low-cost way to begin a passive income stream is to invest in blue-chip dividend stocks. One such TSX stock is Canadian Natural Resources (TSX: CNQ), which currently offers a forward yield of almost 4%. Let’s dive deeper.
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The bull case for CNQ stock
Despite a challenging macro environment and volatile oil prices in 2023, Canadian Natural Resources strengthened its balance sheet, provided significant returns to shareholders, and strategically developed its asset base, achieving record annual production while growing its reserves organically.
In 2023, total proved reserves for CNQ increased 2% to 13.9 billion BoE (barrel of oil equivalent), showcasing the strength and depth of the company’s assets that also offer it a competitive advantage.
Around 75% of total proved reserves are from long-lived, low-declination assets, while 50% consist of high-value synthetic crude oil with a zero decline and a reserve late index of 44 years.
In the fourth quarter (Q4) of 2023, CNQ reported an adjusted funds flow of $4.4 billion, while net earnings from operations stood at $2.5 billion. While CNQ grew production by 7% per share in 2023, it repurchased shares worth $3.3 billion and reached net debt levels of $10 billion. CNQ will now allocate 100% of free cash flow in 2024 to shareholders via dividends and buybacks.
CNQ raises dividends again
CNQ’s unique asset base and efficient operations allowed it to deliver significant cash flow in 2023. The company also raised dividends by 5% year over year to $1.05 per share. CNQ has now increased dividends for 24 consecutive years at an exceptional compound annual growth rate of 21%.
CNQ has allocated $5.4 billion towards capital expenditures, which should drive future cash flows and dividends higher. Its free cash flow stood at $6.9 billion after total dividend payments of $3.9 billion and base capital expenditures of $4 billion.
CNQ’s low payout ratio provides it with enough room to reinvest in growth projects and target accretive acquisitions. Priced at 13.1 times forward earnings, CNQ stock is quite cheap and trades at a discount of 3% to consensus price target estimates.
