Canadian Natural Resources (TSX:CNQ) is up about 9% in 2024 compared to a gain of more than 20% for the TSX. Investors are wondering if CNQ stock is currently undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and total returns.
Canadian Natural Resources stock price
Canadian Natural Resources trades near $47.50 at the time of writing compared to $56 in April. The pullback is due to a drop in oil prices over the past six months.
The company produces a wide range of energy products with assets that include oil sand, conventional heavy oil, conventional light oil, offshore oil, natural gas liquids, and natural gas. West Texas Intermediate (WTI) oil trades near US$68 a barrel at the time of writing compared to US$86 in early April. Natural gas has been volatile this year, trading in a range between US$1.50 and US$3.30 per million British thermal units (MMBtu). Natural gas is currently trading near its high for the year.
Outlook
The recent rebound in natural gas prices is one reason CNQ stock is holding up better than might be expected, given the slump in oil prices. The company is best known for its oil production, but CNQ is also a major natural gas producer in Western Canada. With the new Coastal GasLink natural gas pipeline complete and the new liquified natural gas (LNG) export facility it connects to, CNQ is expected to begin commercial service next year, CNQ is poised to benefit from the added access to international LNG buyers.
Demand for Canadian natural gas is expected to be strong in the coming years as global buyers seek out reliable sources to fuel power production. Electricity consumption is expected to rise due to economic growth. Countries are also building power-hungry artificial intelligence data centres. Natural gas emits less carbon dioxide when burned compared to oil and coal, so it is the preferred fuel source for power generation, whereas renewables might not be able to deliver the needed reliability or capacity to handle demand surges.
CNQ is good at quickly moving capital around its asset portfolio to take advantage of opportunities in commodity markets. The company also has a very strong balance sheet. These characteristics have enabled the board to raise the dividend in each of the past 25 years despite the volatility of the commodity cycles. The company recently increased the payout by 7%. Investors who buy CNQ stock at the current price can get a dividend yield of 4.75%.
CNQ has the financial capacity to make large strategic acquisitions to drive production and resource growth. The company’s recent US$6.5 billion cash deal to acquire assets in Alberta from Chevron is a good example.
Risks
Analysts broadly expect oil prices to remain under pressure for most of 2025 due to weak demand from China and rising production in some areas, including the United States and Canada. This could limit the upside for CNQ stock.
Canadian energy companies are also waiting to see if new tariffs threatened by Donald Trump will be implemented on Canadian oil and natural gas. If the commodities are hit with the tariffs, a steep pullback could occur in the share prices of Canadian energy producers.
Should you buy CNQ stock now?
You need to be an oil and natural gas bull to buy Canadian energy stocks. Near-term volatility should be expected due to the uncertainties of tariffs and the weak outlook for oil prices in the coming year.
That being said, CNRL pays an attractive dividend that should continue to grow, so you get paid well to ride out any additional downside. Current holders of the stock should probably sit tight at this point. Oil bulls with a buy-and-hold strategy might want to consider taking a small contrarian position at this level and look to add on new weakness.
