Investing in one’s strengths increases the chances of generating returns, and Canada’s strength is its oil sands reserves. Canadian Natural Resources (TSX:CNQ) has the second-largest reserves compared to its global peers. It produces natural gas, natural gas liquids (NGLs), heavy crude oil, light crude oil, bitumen, and synthetic crude oil (SCO). The company has a history of growing dividends for 25 consecutive years.
Strengths of the 5.3% dividend knight
- Lower cost: Canadian Natural Resources has lower costs than its peers due to its high-value, low-maintenance reserves. In 2024, its operating costs were $7–$10 per barrel (bbl) lower than its peer average, which resulted in an incremental annual margin of approximately $1.2 billion to $1.7 billion.
- Higher output: In the December 2024 quarter, the company acquired several oil sands reserves, which significantly increased debt to $18.7 billion from $10.3 billion in March 2024. However, the acquired assets increased the company’s production output and reduced costs.
- Higher price for output: Moreover, its diverse product mix and diversified marketing strategy help it realize a higher price for its output. In the first quarter, its realized price for exploration and production liquids rose 14% year-over-year to $79.85/bbl, and that for natural gas increased 23% to $3.13/Mcf.
The above three elements help Canadian Natural Resources improve its free cash flow, which it uses to buy back shares and pay dividends. The company grew its dividend for the 25th consecutive year in 2025, showing its resilience to economic events and volatile energy prices.
Why did this dividend knight’s share price surge in May?
Canadian Natural Resources’ share price surged 16% between May 6 and 14, when the WTI crude price surged 10.4% from US$57.13 to US$63.05/bbl. The company’s share price rose faster than the oil price as it announced better-than-expected first-quarter earnings.
Three highlights in the first-quarter earnings attracted investors’ interest:
- The company reduced its 2025 capital budget by $100 million to $6.1 billion as the new acquisitions brought better-than-expected operating efficiencies.
- It reduced its debt by approximately $1.4 billion to $ 17.3 billion as of March 31, 2025.
- Its full-year 2025 production guidance of 1.51 million-1.55 million barrels of oil equivalent (boe)/day was on the upper limit of analyst expectations.
Should you buy this stock at the current price of around $44?
Canadian Natural Resources is a dividend stock. Its share price is range-bound. The stock dipped 22% since November 2024 as the election of Donald Trump as U.S. President raised concerns of a tariff war and pulled down all Canadian energy stocks.
However, the recent surge in the CNQ stock price shows the company’s resilience in withstanding the tariff war and decline in oil prices. This resilience comes as the company changes its product mix according to the market to balance any dip in oil prices.
For 2025, it targets to use ~33% of budgeted natural gas output for its operations, sell ~35% at the Alberta Energy Company (AECO)/Station 2 price, and export ~32% to other North American and international markets. As for the product mix, the energy major will focus on producing high-margin SCO.
In the first quarter, ~51% of its total liquids volumes were SCO produced at an operating cost of $21.88/bbl and sold at a realized price of $95.52/bbl.
These numbers show CNQ can continue growing its dividend by high single digits for another decade.
How to optimally invest in Canadian Natural Resources
CNQ is a good stock to buy and hold long term if you are looking for an alternate source of income. The company pays a quarterly dividend. However, the dividend tax could reduce your after-tax returns.
You could consider investing in CNQ through a Tax-Free Savings Account (TFSA) if you want to withdraw the payout, as withdrawals are tax-free. You could also invest through a Registered Retirement Savings Plan (RRSP) if you want to reinvest the dividend to buy another stock or more shares of CNQ. The RRSP and TFSA allow your investments to grow tax-free.
As CNQ does not offer a dividend reinvestment plan (DRIP), you will have to collect the payout in a TFSA or RRSP and, instead of withdrawing, use that amount to buy more shares of CNQ.
As long as CNQ’s dividends and cost leadership are intact, you could keep accumulating this stock. Investing a small amount every month/quarter can help you build a sizeable dividend amount.
