Best Stock to Buy Right Now: Canadian Natural Resources vs Suncor?

When choosing between two energy stocks, it’s a good idea to understand and compare their business models, and not just their return potential and performance history.

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The S&P/TSX Capped Energy Index has fallen 7.8% in the last six months. The fall has been unsteady – a combination of rises and falls, but the overall direction of the sector seems bearish. This represents a stark contrast to the TSX bull market, which pushed it up 9% over the same period.

There are plenty of energy stocks that are worth looking into, even in this bearish phase, particularly in this bearish phase if your primary goal is dividends, as the trend may allow you to lock in a solid yield. This includes an upstream giant and one of the largest integrated energy companies in the country.

The case for the upstream giant

Canadian Natural Resources (TSX:CNQ) is one of the largest upstream companies in North America, with a market capitalization of $105.9 billion and extensive energy assets. It has the largest natural gas and oil reserves in Canada and a proven reserve life index of 33 years, almost double the peer average of 17 years.

It’s also one of the most prominent energy producers in Canada – a top spot in oil production and second place in natural gas production in the country. If we take other factors like the cost of production and financial stability into account, Canadian Natural Resources is easily one of the safest upstream companies in Canada. The stock performance over the year has endorsed this notion.

Created with Highcharts 11.4.3Canadian Natural Resources PriceZoom1M3M6MYTD1Y5Y10YALL6 Apr 20203 Apr 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '2520212021202220222023202320242024202520250102030405060www.fool.ca

The stock has experienced an impressive bull run in the last five years – 200%. And while the sector-wide momentum that triggered and sustained that growth is now waning, this might be one of the few that may not see a brutal correction. It’s also one of the few energy stocks that reverted to a healthy level after the 2014 slump. As for dividends, CNQ is currently offering a generous 4.4% yield with a solid payout ratio.

The case for the integrated energy company

From upstream activities – that is, extracting oil to refining and selling fuel via a massive network of fuel stations across the country – Suncor (TSX:SU) does it all. It has an oil sands reserve life of around 27 years. However, it also leans heavily towards oil and oil-based products. A healthier mix of natural gas and oil would have been better.

Created with Highcharts 11.4.3Suncor Energy PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

The stock has experienced modest growth in the last five years – 38% – and is currently offering a healthy yield of around 4%. The payout ratio is rock solid and even though the company did slash its payouts during the pandemic, it has already grown its quarterly payouts beyond the pre-pandemic levels.

Foolish takeaway

Despite the massive difference between the five-year performance of the two energy stocks, their future growth prospects might not be too different. Though Canadian Natural Resources has an edge there, as well as the dividend yield and history. Suncor is undervalued but even then, Canadian Natural Resources might be slightly better for most Canadian investors.  

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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 Adam Othman 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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