Can a stock with a 5.56% annual dividend yield give you $13,640 in yearly dividends? It can. For that, you need to adopt an accumulation strategy. If you keep accumulating a growth stock for a long time, it can improve your yield significantly. Even among dividend stocks, there are dividend-growth stocks which grow their dividends annually as they grow their cash flow. Canadian Natural Resources (TSX:CNQ) is one such stock.
Investing in Canadian Natural Resources
Canadian Natural Resources has been growing dividends for the last 24 years at a compounded annual growth rate (CAGR) of 23%. How does it manage to do that?
CNQ has low decline, high-value oil and gas reserves, which are the world’s second-largest oil sands reserves with a 32-year life index. It even has a cost advantage as oil sands mining has low maintenance capital requirements. CNQ’s West Texas Intermediate (WTI) breakeven is mid-$40/barrel after including maintenance and dividend payments.
As CNQ incorporates dividends in its breakeven price, it plans yearly production capacity and product mix depending on market pricing. If WTI is high, then heavy oil takes a larger share of its production output, and when WTI is low, the higher-priced synthetic crude oil takes a larger share.
The strategy behind dividend growth
When the oil price is high, CNQ enjoys higher free cash flow, which it uses to repay debt and buy back shares. This keeps reducing its share count, enabling it to grow dividends at a faster pace. According to its free cash flow (FCF) allocation policy,
- 60% of FCF is returned to shareholders when net debt is over $15 billion;
- 75% is returned when net debt is $12-$15 billion; and
- 100% is returned when net debt is $12 billion.
At the end of 2024, CNQ’s net debt was $18.7 billion as it acquired $8 billion worth of oil sands reserves. However, it returned 92% FCF to shareholders in the first quarter of 2025 and used approximately $1.4 billion to reduce net debt to $17.35 billion. If it continues to pay down debt at this pace, it could reduce its net debt to $15 billion. Its low capital requirement ensures that even high debt is paid down at a faster rate.
How many shares of Canadian Natural Resources do you need to get $13,640 yearly dividends?
Canadian Natural Resources’s low-risk business model ensures the company continues to grow dividends, making it a good option for an accumulation strategy. At present, it has an annual dividend yield of 5.56% but this can grow to 20%.
If you invest $25,000 now, you can buy 591 shares at $42.3 per share and earn $694 for the next two quarters of 2025. The company does not offer a dividend-reinvestment option.
Moreover, CNQ is a range-bound stock, which hovers in the price range of $40-$50. You could accumulate CNQ shares at $45 or lower. A $3,000 annual investment can buy you 67 shares. If you target to acquire 67 shares every year, your dividend will grow as follows.
I have assumed a 10% annual dividend growth.
| Year | CNQ Dividend/Share | Investment Amount | Total Share Count | Annual Dividend Income |
| 2025 | $2.35 | $25,000 | 591 | $694.43 |
| 2026* | $2.585 | $3,000 | 658 | $1,700.93 |
| 2027* | $2.844 | $3,000 | 725 | $2,061.54 |
| 2028* | $3.128 | $3,000 | 792 | $2,477.26 |
| 2029* | $3.441 | $3,000 | 859 | $2,955.51 |
| 2030* | $3.785 | $3,000 | 926 | $3,504.63 |
| 2031* | $4.163 | $3,000 | 993 | $4,134.03 |
| 2032* | $4.579 | $3,000 | 1060 | $4,854.25 |
| 2033* | $5.037 | $3,000 | 1127 | $5,677.19 |
| 2034* | $5.541 | $3,000 | 1194 | $6,616.17 |
| 2035* | $6.095 | $3,000 | 1261 | $7,686.17 |
| 2036* | $6.705 | $3,000 | 1328 | $8,904.01 |
| 2037* | $7.375 | $3,000 | 1395 | $10,288.55 |
| 2038* | $8.113 | $3,000 | 1462 | $11,860.97 |
| 2039* | $8.924 | $3,000 | 1529 | $13,644.98 |
| Total | $67,000 | $87,060.60 |
As your share count increases, so does your payout. Consider investing through the Tax-Free Savings Account (TFSA) as it allows your investments to grow tax-free. Instead of withdrawing the dividend money, you can use it to buy 67 shares of CNQ annually. Since you are using the investment income to buy more shares, your TFSA contribution remains intact. Fourteen years of accumulation can earn $13,645 in yearly dividends, which, when divided by the $67,000 investment, gives an annual yield of 20%.
