One of the best-performing TSX stocks in the last two decades is Canadian Natural Resources (TSX:CNQ). Since May 2004, CNQ stock has returned over 1,000% to shareholders. However, if we account for dividend reinvestments, cumulative returns are much higher at 1,800%. Comparatively, the TSX index has returned 405% to investors in the last 20 years in dividend-adjusted gains.
CNQ is among the largest companies in Canada, valued at a market cap of $112 billion. The energy giant recently announced a two-for-one split of its common shares. This means shareholders would receive one additional share for every common share held as of the record date.
Investors should understand that a stock split does not materially impact a company’s fundamentals. In this case as the number of outstanding shares will double, CNQ’s stock price will decline by 50%, keeping its market cap virtually unchanged.
However, a stock split makes it cheaper for retail investors to buy shares of the company, which also boosts liquidity. Several companies have split their stock periodically to maintain a desirable or affordable share price.
Let’s see if it CNQ stock is a buy before its upcoming stock split in June.
Is CNQ stock a good buy right now?
Canadian Natural Resources is a senior crude oil and natural gas production company with operations in Western Canada, Offshore Africa, and the U.K. portion of the North Sea. Its large and diversified asset base provides CNQ with a competitive advantage enabling it to effectively allocate capital and manage the timing of development activities.
In 2024, Canadian Natural Resources emphasized it is strategically weighted to longer cycle thermal development projects in the first two quarters and shorter cycle growth projects in the second half of the year. This strategy should allow CNQ to finish 2024 with strong exit rates as conventional activity ramps up in the second half of the year.
The strength of CNQ’s long-life low-decline asset base supported by efficient operations makes its business unique and sustainable. In the first quarter (Q1) of 2024, CNQ reported adjusted net earnings of $1.5 billion and adjusted funds flow of $3.1 billion, allowing it to return $1.7 billion to shareholders in the quarter.
A growing dividend
Canadian Natural Resources maintains a robust balance sheet, ending Q1 with $6.8 billion in liquidity, which provides it with the flexibility to navigate an uncertain macro environment. It achieved its net debt level target of $10 billion in 2023 and now aims to return 100% of free cash flow to shareholders this year.
CNQ has a strong history of growing its sustainable dividend, enhancing the effective yield over time. In the last 24 years, CNQ has raised dividends by more than 20% annually, which is exceptional for an energy company.
In Q1, CNQ returned $1.1 billion to shareholders via dividends and $600 million through share buybacks. Due to its consistent dividend hikes, CNQ stock offers shareholders an annual dividend of $4 per share, translating to a yield of 3.8%.
Despite its market-beating gains, CNQ stock trades at 14 times forward earnings, which is quite reasonable. While it may be impossible for CNQ to replicate its historical gains, the energy company is positioned to boost shareholder returns going forward.
