The Canadian energy sector has been in focus since U.S. President Donald Trump imposed a 10% tariff on Canadian crude oil exports. The demand and supply forces acted and adjusted the WTI crude price for tariffs. The WTI crude oil price fell from over US$70/barrel to US$60.
The WTI price will keep fluctuating depending on how the tariff war unfolds. For instance, the open communication channels between Donald Trump and Canadian Prime Minister Mark Carney have raised investor optimism around a trade negotiation. This drove up the WTI crude price to US$66/barrel, bringing it closer to the pre-tariff level.
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The best energy stock in which to invest $500
Recent developments in the tariff war have created an opportunity to buy Canadian energy stocks impacted by tariffs. Pureplay oil company Suncor Energy and pipeline operator Enbridge facilitate crude oil exports to the United States. However, they may not be the best investments right now because of their high valuation. They trade at a price-to-earnings (P/E) valuation of 10.5 times and 23.2 times, respectively, among the highest in the last 18 months.
Canadian Natural Resources (TSX: CNQ) is a good investment right now as it trades at a P/E ratio of 12.2 times, which is lower than its ratio in the last five quarters.
What sets Canadian Natural Resources apart from the above two stocks is:
- Its diversified product mix of natural gas, natural gas liquids (NGLs), heavy crude oil, light crude oil, bitumen, and synthetic crude oil (SCO). The company can realize a higher price for its output.
- A diversified consumer base for its output. For 2025, it plans to sell ~35% at the Alberta Energy Company (AECO)/Station 2 price, export ~32% to other North American and international markets, and use the remaining budgeted natural gas for its operations.
- The company’s high-value, low-maintenance reserves. This gave it an operating cost advantage of $7–$10 per barrel over its peer average in 2024. The higher price added $1.2 billion to $1.7 billion in incremental profits.
Why is now the right time to invest in this stock?
In the last quarter of 2024, Canadian Natural Resources acquired significant oil sands reserves, which increased its debt to $18.7 billion from $10.3 billion in March 2024. These reserves increased their production output and reduced costs. The company is using the earnings from these assets to reduce its debt. It paid off $1.4 billion in debt in the first quarter alone. We can expect significant debt reduction throughout the year, which could increase cash flow and reduce the dividend payout ratio.
If the trade negotiations drive the WTI price to US$70/barrel, it would further increase Canadian Natural Resources’ cash flow. A higher oil price will push CNQ’s share price in a positive direction.
If the situation reverses and the WTI price falls to US$50/barrel, the company can continue to pay $2.35 in annual dividends per share. The sustainability of dividends is feasible as the company’s WTI break-even is mid-US$40 per barrel after considering maintenance costs and dividends.
CNQ’s share price has already surged almost 17% from the April dip when U.S. retaliatory tariffs were implemented. The stock could reach the $50 price as the new oil sands reserves drive production. You can also lock in a 5.3% yield and expect 9–10% annual dividend growth, one of the highest and sustainable growth rates among Canadian energy players.
