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

Two TSX energy stocks are solid investment options but one is the best buy right now.

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Many money-making Canadian stocks belong in the energy sector, particularly in the Oil & Gas segment. Two industry stalwarts, Canadian Natural Resources (TSX: CNQ) and Cenovus Energy (TSX:CVE), have delivered healthy returns and should do so for years to come.

CNQ and CVE ranked 19th and 23rd in the 2024 TSX30 List, the flagship program for top-performing TSX stocks. According to the International Energy Agency (IEA), the oil and gas industry worldwide is not heading into long-term decline over the next 30 years.

Canadian oil production is projected to increase from 5.6 million barrels per day (mb/d) in 2021 to 6.4 mb/d in 2040. Furthermore, given the projected global demand between 2022 and 2050, IEA estimates North America’s total oil and gas investment to reach around US$5.4 trillion.     

Thus, Canadian Natural Resources and Cenovus Energy remain solid choices for growth and dividend investors, not to mention retirees. If you want exposure to Canada’s oil and gas industry, which one is today’s best buy?

Smaller but competitive

Cenovus Energy is smaller than Canadian Natural Resources based on market capitalization. However, the $43.1 billion integrated energy company stands out in a competitive energy landscape. In the first half of 2024, revenues and net earnings increased 15.5% and 44.9% year-over-year to $28.3 billion and $2.2 billion, respectively.

Created with Highcharts 11.4.3Cenovus Energy PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Notably, cash from operations climbed 177.7% to $4.7 billion from a year ago, while net debt at the end of Q2 2024 declined 15.9% to $4.3 billion from year-end 2023. Because of improving business fundamentals, the plan is to return 100% of excess funds flow to investors from 2024 to 2028 and maintain net debt at $4 billion.

At $23.23 per share (+8% year-to-date), Cenovus Energy pays a modest but safe 2.9% dividend yield (29.3% payout ratio). Based on market analysts’ buy rating, the 12-month average price target is $32.40 (+39.6%).

Size matters

Canadian Natural Resources is a $103.8 billion independent crude oil and natural gas producer. At $48.75 per share (+16.2% per share), you can partake in the lucrative 4.1% dividend (56.9% payout ratio). This top-tier energy stock is also a dividend aristocrat owing to 25 consecutive years of dividend increases.

Created with Highcharts 11.4.3Canadian Natural Resources PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

On October 7, 2024, the Board approved a 7% dividend hike because of significant free cash flow and its strong financial position. In the first half of 2024, adjusted funds flow increased 31.8% year-over-year to $3.6 billion. Its CFO, Mark Stainthorpe, said CNQ commits to returning 100% of free cash flow (FCF) to shareholders in 2024.

According to management, the long-life, low-decline asset base makes the business model unique, robust, and sustainable. Canadian Natural Resources will soon own Chevron Canada’s 20% interest in the Athabasca Oil Sands Project. The acquisition will contribute significantly to sustainable FCF generation.

Decided edge

Cenovus Energy is a profitable investment option, similar to larger industry peers. However, Canadian Natural Resources has the edge due to its market cap, dividend growth streak, and larger payout. The energy giant is a no-brainer buy in Canada’s prolific oil and gas industry.

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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 Christopher Liew 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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