Forget Canadian Natural Resources: Buy This Top Energy Stock Instead

CNQ stock has long been a top choice for those seeking long-term growth and dividends. But the stability of the past doesn’t seem to be in the future.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Oil and gas stocks are a significant component of the Canadian stock market, particularly on the TSX. As of 2023, the energy sector, which is heavily dominated by oil and gas companies, accounts for about 15-20% of the TSX. Over the past decade, Canadian oil and gas stocks have experienced considerable volatility, with annual returns ranging from a fall of 30% during downturns, such as the 2020 oil price crash, to over 50% in boom years like 2021-2022, when energy prices surged.

Yet dividend yields in this sector still tend to be relatively high. With many Canadian oil and gas companies offering yields between 4-6%. This makes them attractive to income-focused investors. However, the sector’s performance is closely tied to global oil prices, economic cycles, and regulatory changes. This can lead to significant fluctuations in stock prices and returns. So, perhaps it’s time to look elsewhere.

Created with Highcharts 11.4.3Brookfield Renewable Partners + Canadian Natural Resources PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Is oil out?

When it comes to choosing the right stock for your portfolio, Canadian Natural Resources Limited (TSX:CNQ) and Brookfield Renewable Partners LP (TSX:BEP.UN) present two very different investment opportunities. While CNQ has been a solid performer in the energy sector, there are several reasons why Canadian investors might want to reconsider this choice, especially when compared to BEP.UN, which offers a compelling alternative. Particularly for those interested in sustainable energy and long-term growth.

CNQ is undoubtedly a giant in the oil and gas industry, with a market cap of $104.47 billion and strong financials. It boasts a trailing price-to-earnings (P/E) ratio of 13.97 and a dividend yield of 4.23%. However, the stock’s high beta of 1.92 indicates significant volatility. This could be a concern for risk-averse investors. Furthermore, with a payout ratio of 56.90%, while sustainable, the company’s reliance on the volatile oil market makes its dividends more susceptible to economic downturns and fluctuations in oil prices.

What about renewables?

BEP.UN offers a more stable and sustainable investment option, especially in today’s market where ESG (environmental, social, and governance) factors are becoming increasingly important. With a forward annual dividend yield of 5.85%, BEP.UN not only offers a higher yield than CNQ; it also operates in the renewable energy sector, which is expected to see significant growth in the coming years. Despite a higher payout ratio of 649.02%, the company’s focus on long-term contracts and stable cash flows from renewable energy projects make its dividend more reliable in the long run.

Looking at recent earnings, BEP.UN reported a 23% year-over-year revenue growth in its most recent quarter, reflecting the increasing demand for renewable energy. Although the company reported a net loss of $230 million, the growing revenue and strategic investments in new projects position it well for future profitability. Additionally, with a lower beta of 0.87, BEP.UN offers a less volatile investment compared to CNQ, making it a safer choice for investors looking for stability.

Bottom line

Altogether, while CNQ has been a strong player in the traditional energy sector, the volatility associated with the oil market and the company’s exposure to global economic risks make it a less appealing option for conservative investors. BEP.UN, with its focus on renewable energy and strong growth potential, offers a more attractive investment. Particularly for those interested in long-term, sustainable returns. Whether you’re looking for higher dividends or lower volatility, BEP.UN stands out as the better choice for Canadian investors in the current market landscape.

Should you invest $1,000 in Brookfield Renewable Partners right now?

Before you buy stock in Brookfield Renewable Partners, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Brookfield Renewable Partners wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 Amy Legate-Wolfe has positions in Brookfield Renewable Partners. The Motley Fool recommends Brookfield Renewable Partners and Canadian Natural Resources. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Energy Stocks

A plant grows from coins.
Energy Stocks

2 Discounted Dividend Stocks With Significant Growth Potential

If you’re in search of income and capital appreciation in the long run, here are two discounted Canadian dividend stocks…

Read more »

Senior uses a laptop computer
Energy Stocks

Here’s How Investors Can Turn $15,000 in a TFSA Into $235,000

Energy stocks aren't created equal, and this one might be one of the best of the batch.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 Reasons I’m Considering Enbridge Stock for a $5,000 Investment This April

I'm considering Enbridge stock to provide some defensive appeal and a juicy dividend to my long-term portfolio.

Read more »

Oil industry worker works in oilfield
Energy Stocks

CNQ Stock: Buy, Hold, or Sell Now?

CNRL is down 35% in the past year. Is CNQ stock now oversold?

Read more »

Canadian dollars in a magnifying glass
Dividend Stocks

Young Investors: How I’d Allocate $10,000 for Long-Term Potential

Young Canadians can achieve financial independence faster by saving and investing early.

Read more »

canadian energy oil
Energy Stocks

How I’d Position $7,000 in This Canadian Energy Stock for 2025 Growth Potential

Tourmaline, Canada's low-cost and largest natural gas producer, is benefiting from strong industry fundamentals.

Read more »

nuclear power plant
Energy Stocks

1 Magnificent Canadian Stock Down 40% to Buy and Hold Forever

This energy stock may be down, but do not count it out if you're looking for long-term income.

Read more »

A plant grows from coins.
Energy Stocks

Where I’d Put $15,000 in Top Energy Stocks for Income and Appreciation

The recent pullback in energy stocks presents a compelling opportunity for long-term investors to generate capital gains and dividend income.

Read more »