Canada has one of the largest oil sands fields in the world. Its largest oil and gas producer, Canadian Natural Resources (TSX: CNQ), can sell oil at competitive rates and remain profitable and pay dividends. Behind its competitiveness is its low-maintenance, high-value reserves of synthetic crude oil, light crude oil, and natural gas liquids.
Source: Getty Images
This Canadian energy stock is down
Recently, the stock price dipped 8.7% from October 9 as oil prices fell due to concerns of oversupply. On one side, the Organization of the Petroleum Exporting Countries (OPEC+) planned to increase production and push more oil into the market, negatively affecting the oil price. On the other side, escalating trade tensions between the two biggest oil-consuming countries, the United States and China, and the weekly reports of increasing US crude oil stockpiles reduced demand.
All this reduced the West Texas Intermediate (WTI) crude price below US$60/barrel. This price dip affected all oil-producing stocks, including Canadian Natural Resources. However, these concerns are temporary, and easing of US-China trade relations and control in oil supply will bring the WTI crude above US$60/barrel.
Why is this Canadian energy stock a steal?
Canadian Natural Resources manages lower oil prices by slowing production and reducing capital investment to maintain free cash flow. It has a breakeven price of mid-$40s, which includes dividend and maintenance costs. This shows the company can continue paying its current annual dividend of $2.35 per share.
In fact, the company has even sustained and thrived during a major oil crisis that had a permanent impact on oil prices. The latest dip is business as usual. Oil prices are fluctuating due to geopolitical uncertainties. This fluctuation has created a buying opportunity for investors and locked in a higher dividend yield of 5.6%, which is attractive given its 21% average annual dividend growth. Most dividend growth stocks have a yield of 4% or lower.
You could consider investing a little over $10,000 and buying 236 shares of CNQ at around $42 per share. These shares can earn you $554.6 in annual dividend income if they keep the dividend per share unchanged at $2.35. However, the company has a 25-year track record of growing dividends, which it may like to maintain. Assuming it grows its dividend by 10% to $2.59 next year, a $10,000 investment can earn $610 in annual dividends.
If you invested $10,000 at a share price of $45 per share, you would get 222 shares that would give $521.70 in annual dividends at current levels and $573.90 if dividends grow. You can get an additional dividend of $36 if you invest now.
How to invest in Canadian Natural Resources
Canadian Natural Resources is a moderate-yield, high-dividend growth stock that you can buy now at the dip. If you do not have time to track the market, you can consider investing a small amount of $100 to $250 per month in Canadian Natural Resources. Dollar-cost averaging will reduce the cost of shares over time, and dividend growth will increase passive income.
Since Canadian Natural Resources does not offer a dividend reinvestment plan, you can use the quarterly dividend money to make opportunistic buys, such as Air Canada at $18 per share. You can also use the dividend money to buy more shares of Canadian Natural Resources to compound your passive income. If you invest through a Tax-Free Savings Account or Registered Retirement Savings Plan, the dividend will be tax-free on Canadian stocks.
