The Canadian energy patch is home to some pretty cheap dividend growers. Undoubtedly, oil prices may have fallen into a bit of a rut, and as quarterly numbers come in, investors may have a difficult decision on their hands as they seek to avoid further negative momentum. Indeed, there’s plenty of incentive to hang onto the Canadian major energy producers, even as their shares come in while the bear stays in the driver’s seat. For one, there’s a nice 5.71%-yielding dividend, which isn’t only bountiful but poised to grow steadily over time, even if oil prices do continue to fluctuate in both directions.
And while volatility will always be part of investing in the top energy producers, I think that those investors have more than just dividends and capital gains to look forward to with the names. Indeed, commodities and their producers can act as fantastic portfolio diversifiers when the whole market gets caught up in a downdraft of sorts. Of course, the higher betas entail a strong positive correlation to the broad TSX Index.
However, the great bear market of 2022 showed us the value of having commodities. That year, tech was battered while commodities were what was hot. I have no idea when the next bear market will be and what it’ll entail. Some pundits think an artificial intelligence bubble burst could happen. And while I’m not sure when it’ll strike, I think it’s only smart to be broadly diversified and not all-in on tech, as some young Canadian investors may be after the latest bullish run.
In this piece, we’ll go over one oil stock that punches well above its weight in terms of dividends and growth.
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Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) is in a bear market, now down more than 26% from last year’s all-time high, just shy of $56 per share. Undoubtedly, the energy producer, which has a $84.6 billion market cap, is a cash cow, even as energy prices continue to pull back.
The company has made several smart acquisitions and could be in the market for many more as the sector continues to feel more pressure going into the year’s end. With a strong dividend and a commitment to reward shareholders, even through turbulent times for the stock, I’d be inclined to buy when shares gravitate lower or move sideways.
Why? The management team is always looking to bolster cash flows, whether via mergers and acquisitions or smart organic investments. Though the narrowing spread between Canadian crude and West Texas Intermediate (WTI) is shrinking, WTI itself isn’t exactly booming, now going for close to US$62 per barrel. That’s getting close to multi-year lows, but until it falls below US$40 per barrel, CNQ will have little problem paying out its dividend.
Either way, Canadian Natural is a well-run operator that can continue to rake in the profits and keep paying dividends to shareholders. Until the top bosses stop prioritizing returning capital to investors while doing their best to smooth operations in a rougher environment for producers, I’d stick with the name for the long haul. It’s probably just a matter of time before CNQ is a $100 billion company again. For now, shares look like a bargain at 10.3 times trailing price to earnings. With higher production in the second quarter and a promising longer-term roadmap, I’d consider buying shares in a bear market.
