Canadian energy stocks are at the center of attention among the Trump tariffs. A 10% basic tariff on all Canadian oil imports pulled down oil prices by 16% from US$71.71 to US$59.58 by April 8. It was after Trump paused tariffs for 90 days that the oil price recovered slightly. The dip was expected as oil prices adjust to the new tariffs.
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Are Canadian energy stocks a smart buy?
In this chaos, Canadian energy stocks fell sharply as many relied on United States exports for their revenue. Canada’s two largest oil companies, Canadian Natural Resources (TSX:CNQ) and Suncor Energy, are the hardest hit, as most of their production is exported to the United States. And they continue to face a 10% tariff as the 90-day pause is not applicable to Canadian energy imports.
Canadian Natural Resources
WTI crude is trading above Canadian Natural Resources’ breakeven of low-to-mid US$40/barrel. Even if the tariff war lowers the oil price to the pre-pandemic level of US$64–US$66, the oil and natural gas major has the flexibility to pay dividends because of the low maintenance of its projects. CNR’s policy determines the free cash flow (FCF) allocation for dividend payments depending on net debt. When net debt is $15 billion, 60% of FCF is returned to shareholders.
CNQ’s net debt more than doubled to $18.7 billion in 2024 as it acquired new properties. The high debt means CNQ would pay 60% FCF in dividends. As per the company’s presentation, it earns FCF of around $4 per share when the WTI is US$65/barrel. Assuming 60% of $4, which comes to $2.4, the company can sustain its 2025 dividend of $2.35. Moreover, CNQ can increase its production to grow dividends.
CNQ can sustain a short-term tariff while offering incremental dividends. Even if the tariff war is prolonged, CNQ could look for alternative clients for its oil, which could normalize growth in the long term.
Enbridge stock
Enbridge (TSX:ENB) is another resilient dividend payer. Its pipelines are used to transport oil and gas between America and Canada. Unless the tariff war alters the trade structure, Enbridge can continue paying dividends. The company has been diversifying its revenue streams with the acquisition of three gas utilities in the United States. It has been working on diversifying its natural gas exports to Europe and other countries.
Enbridge’s management stated that the short-term tariff is unlikely to affect its cash flow. However, a prolonged tariff could impact the business. In the meantime, Enbridge could continue paying dividends as it only allocates 60–70% of its distributable cash flow as dividends. A short-term imbalance can be covered by increasing the payout ratio.
You could consider buying Enbridge despite the tariff risk, as a structural change in the oil and gas supply chain is rare. If this risk doesn’t unfold, you can benefit from buying the dip.
Investor takeaway on energy stocks
Canada’s energy markets are in turmoil as their single largest buyer has levied a tariff, creating short-term volatility. Whatever the outcome, players with the cost advantage will survive. A structural shift takes time, and it could open a new growth chapter for the two companies.
