It is already mid-May, and if you have been putting off investing because of tariff uncertainty, don’t make that mistake. The market correction is the right time to buy value stocks. Energy stocks have been in the spotlight since the tariff war began. Canadian oil exports face a 10% customs duty, which has reduced the WTI crude price to below US$62/barrel (bbl) from over US$70/bbl before tariffs. The lower oil price ended windfall gains of oil companies like Suncor Energy. However, there is one stock that is a smart buy for its dividends.
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The smartest energy stock to buy with $500
Oil and gas stocks are cyclical as they do not have control over the selling price. The one with the lowest cost per barrel gets a profit advantage, and Canadian Natural Resources (TSX:CNQ) has that advantage. It has the second-largest oil sands reserves among global peers.
Moreover, its WTI breakeven is low-to-mid US$40 per barrel. This price covers maintenance, capital, and dividends. So, $62/bbl is still a good price for Canadian Natural Resources.
Unlike other oil companies, Canadian Natural Resources has a diverse product mix of natural gas, natural gas liquids, heavy crude oil, light crude oil, bitumen, and Synthetic Crude Oil. All these products have different prices, which gives the company flexibility to change its product mix to realize a good price for its output. Moreover, it sells its output across markets, rather than solely relying on exports to North America.
This flexibility has helped Canadian Natural Resources smartly navigate oil and gas price volatility. It sustained the 2014 oil crisis when the oil price underwent a structural change to US$60–US$65 from US$100. It also sustained the pandemic shock when the oil price fell below US$35.
When is a good time to buy this energy stock?
Canadian Natural Resources stock is range-bound, trading between $35 and $50. CNQ’s range has increased since it acquired reserves worth $8 billion. The share price is influenced by the oil price. It surged 16% to $44.93 in May as oil prices surged 10%. A correction is likely as the oil price falls. A good time to buy the stock is when it trades at or below $40, as you can lock in a 6% yield.
The stock is falling as optimism from the first quarter earnings eases. However, you can invest $500 even now and buy 11 shares, which can give you $25.85 in annual dividends. Since the company has a 25-year history of growing dividends at a compounded annual growth rate (CAGR) of 21%, you can expect the payout to grow annually. Although not by 21%, but a high single-digit percentage.
It is a stock you can keep accumulating at every dip and build your dividend pool. As you buy near the lower end of the range, you can lock in a higher yield and reduce the downside risk.
Is Canadian Natural Resources a good substitute for Enbridge for retirees?
Between Enbridge (TSX:ENB) and CNQ, Enbridge is a better investment for retirees because of its low-risk model. While CNQ has shown impressive resilience, it is exposed to oil prices, which can affect its margins. However, Enbridge is not directly affected by oil and gas prices. It has long-term supply contracts that keep the toll money coming.
The real risk for Enbridge will come when there is a structural change in the United States-Canada energy trade. Its pipeline infrastructure works on the foundation of oil and gas exports between the two countries.
While Trump tariffs have disturbed energy exports, they have not made a long-term change. Moreover, Enbridge is already working on building pipelines and storage infrastructure to facilitate liquified natural gas export to Europe and other countries.
The risk is lower in Enbridge, but so is the reward, as it has slowed its dividend growth rate to 3%. Meanwhile, the risk is relatively higher in Canadian Natural Resources, but you can expect average annual dividend growth of 8–10%, with a conservative estimate.
