Canadian Natural Resources (TSX:CNQ) is down 18% in the past year. Contrarian dividend investors are wondering if the TSX oil and gas giant is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
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Canadian Natural Resources share price
CNRL trades near $41 per share at the time of writing compared to $55 at the high point last year. The stock fell as low as $35 during the tariff rout in April.
Weakness in the oil market is to blame for the pullback. West Texas Intermediate (WTI) oil trades near US$63 per barrel at the time of writing compared to more than US$80 last year. Aside from a few short-lived spikes caused by geopolitical events, the trend for oil prices has been to the downside over the past two years.
Analysts broadly anticipate ongoing headwinds. Canada and the U.S. continue to increase production, and OPEC is planning to boost supply to try to recapture some lost market share. At the same time, there is a risk that trade battles and tariffs will push the U.S. economy into a recession and put added pressure on economic weakness already occurring in China due to the country’s challenges with its real estate market.
Natural gas prices have also come under pressure in recent weeks after moving considerably higher earlier this year.
Opportunity
Despite the near-term negative outlook for oil and gas markets, CNRL continues to deliver solid results. The company is boosting production through successful drilling programs and strategic acquisitions. Margins on oil sales are down from last year, but CNRL says its WTI breakeven is around US$40 to US$45 per barrel, so the business is still very profitable in the current market conditions.
CNRL has the balance sheet strength and the size to make large acquisitions when the sector is under pressure. These deals add important reserves while driving growth and profitability when energy prices rebound. Last year, for example, CNRL purchased Chevron’s Canadian assets for US$6.5 billion.
Increased access to international buyers could be on the way if new oil and gas pipelines get built to move products to the three Canadian coasts. CNRL is a major producer of oil and natural gas and would benefit from the opening of new capacity to direct Canadian energy to new global buyers.
Dividends
CNRL raised the dividend in each of the past 25 years. This is a great track record considering the volatility that can occur in the oil and gas markets. Low break-even energy prices and the solid balance sheet should ensure the dividend continues to grow, even during challenging conditions.
Investors who buy CNQ stock at the current level can get a dividend yield of 5.8%.
Time to buy?
Volatility is expected in the energy sector until there is more clarity on how the U.S. tariffs will impact the American and global economies. That being said, CNRL already looks cheap and investors get paid well to ride out the turbulence. If you have some cash to put to work, this stock deserves to be on your contrarian radar.
