Canadian Natural Resources Ltd. (TSX:CNQ) has perfected its business to the point where free cash flows are flowing, dividends are rising, and returns for all stakeholders are soaring.
In the oil and gas world today, it has become increasingly common for companies to focus on returns. This has made them more profitable and efficient. What was once a capital-intense business that chased production at almost all cost has become one that is focused on bottom-line returns. In turn, this has sparked a new focus for the energy sector – investor/stock returns.
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Cash is king
There’s no escaping the fact that Canadian Natural Resources is in a cyclical business – one that’s notorious for financial and stock fluctuations driven by volatile oil and gas prices. But Canadian Natural is really in a league of its own – one that is characterized by stability, predictability, and an abundance of cash generation.
In Canadian Natural’s second quarter 2025 results, these characteristics were once again on full display. Adjusted cash flow came in at $3.3 billion and free cash flow, which is calculated as operating cash flow minus capital expenditures, came in at $1.4 billion. For the first six months of the year, the results look even better. Adjusted cash flow came in at $7.8 billion, 15.4% higher than the same period last year. Free cash flow came in at $4.6 billion, 14% higher than the prior year.
Finally, earnings per share (EPS) for the second quarter came in at $0.71. This was 14.5% higher than what the market was expecting. But what is driving these strong results?
A top-notch asset base
Canadian National is spurting out cash. But this is not something that has happened by accident – it’s by design. You see, the business is benefitting from its lucrative asset base. It’s a diversified asset base that includes exposure to heavy oil, light crude oil and natural gas liquids, as well as natural gas and oil sands.
But the one thing that sets Canadian Natural apart from the rest and that gives it a true competitive advantage is the low decline rate of its portfolio. As you know, all oil and gas wells have a natural “decline rate”, or the rate at which production decreases every year. Well, Canadian Natural’s decline rate on its assets is very low. This translates into long life assets (33 years) that require a minimal amount of capital investment.
As a result, Canadian Natural has become a true cash cow.
Returning the wealth to shareholders
It is management’s stated objective to return much of the wealth it generates to its shareholders. And they have been true to this objective. In fact, in the second quarter, the company returned $1.6 billion to shareholders in the form of dividends ($1.2 billion) and share buybacks ($400 million). Year-to-date, the company returned $4.6 billion to shareholders.
Finally, this energy stock has paid dividends for 25 consecutive years. During this time period, the dividend has increased at a compound annual growth rate (CAGR) of 21%.
The bottom line
Given Canadian Natural stock’s generous dividend yield of 5.3%, its strong and consistent cash flow generation, and its lucrative asset base, I view this energy stock as a clear winner in the sector. Investors would do well to own it as it will benefit as oil prices are rising today. But I really like it because the company also shows resilience even in the more difficult oil price environments.
