Canadian Natural Resources (TSX:CNQ) is down more than 20% from the 12-month high it reached in April last year. Investors who are positive on oil and natural gas demand are wondering if CNQ stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and total returns.
Source: Getty Images
CNRL share price
The stock currently trades near $44 per share. That’s down from $56 last spring and isn’t far off the 12-month low of around $40.
Weak oil prices over the past year contributed to the drop in the share price. CNRL is a major Canadian oil producer with assets that span the hydrocarbon spectrum. The company has oil sands, conventional heavy oil, conventional light oil, and offshore oil production operations. CNRL is also a large producer of natural gas in Canada.
Oil prices came under pressure in the past year amid weak Chinese demand and strong production from non-OPEC members, including Canada and the United States. China, however, is expected to stimulate its economy this year with new investment and spending programs. This could push up oil demand in the country. At the same time, stronger sanctions by the United States on oil from Russia and Iran might tighten up supply and boost demand for North American energy products.
Canadian pipelines
The completion of the TransMountain pipeline expansion last year gives Canadian oil producers new pipeline capacity to access international markets through a terminal on the coast of British Columbia. In addition, the Coastal GasLink pipeline is expected to go into commercial operation in 2025. This will move Canadian natural gas to a new liquified natural gas (LNG) export facility, also in British Columbia. These projects should help CNRL and its peers sell products to international buyers in the coming years.
Recent tariff threats from the United States are driving new interest in the need for Canada to build new oil and natural gas pipelines running from western Canada to the east coast. If new pipelines actually get built, CNRL would be a big beneficiary.
Dividends
CNRL raised its dividend by 7% for 2025. This is the 25th consecutive annual increase in the distribution. The company’s diversified product line, its strong balance sheet, and nimble allocation of capital enable the board to maintain steady dividend growth through the volatile cycles of the commodity markets.
At the time of writing, the stock provides a yield of 5.1%.
Time to buy?
Near-term volatility should be expected as markets try to determine the impact of U.S. tariffs on Canadian energy producers. Weak oil prices could also persist through the year, providing an additional headwind. As such, I wouldn’t back up the truck just yet.
That being said, oil and gas bulls with a contrarian investing style might consider nibbling on CNQ stock near this level and could look to add on further weakness. Any spike in energy prices on a geopolitical shock would likely drive the stock much higher, and the dividend pays you well while you wait for the recovery.
