There are some pretty interesting value plays in the energy patch these days, especially as oil prices move steeply in both directions. Though commodity price movements over the near term can be rather unpredictable, I do think that the top-tier producers with competitive operations can be solid bets, even when the industry goes through a bit of a rough patch. With lower breakeven production costs, such plays can fare well during the routs while being well-positioned for the next inevitable upswing.
Undoubtedly, it’s better to get paid a fat, growing dividend as you wait for the tides to turn. And in this piece, we’ll check out a mature name within the energy patch that offers a nice 5.3% yield for a very modest 14.3 times trailing price-to-earnings (P/E). Enter shares of Canadian Natural Resources (TSX:CNQ), a premier energy play that recently reported some pretty good third-quarter earnings results.
Canadian Natural’s third quarter was worth getting behind
Despite the good numbers, shares haven’t really been able to sustain a big gain, with shares actually reacting mildly negatively immediately following the results. Undoubtedly, there’s only so much that a firm can do when crude oil prices are in a rough spot. While costs did rise, production also surged significantly, thanks in part to past M&A and other efforts to optimize operating efficiencies. Either way, I think the firm is well-equipped from a long-term perspective, as it continues to play the long game.
In the meantime, oil prices could go either way. But for Canadian Natural Resources, which has a pretty robust balance sheet, I’d argue that it’s positioned to thrive, regardless of which direction oil moves. If it stays put, Canadian Natural stands to rake in some pretty considerable cash flows, as it continues to ramp up production. And if prices march lower, the firm has the option to pursue even more acquisitions across the space, likely at a lower price of admission.
Indeed, if the energy patch faces more pressure, the case for a deal, I think, gets stronger, given what a relative giant like Canadian Natural can bring to the table. For long-term dividend growth investors, I’d argue that the case for buying at times of tremendous industry weakness is stronger. In any case, I think the good third quarter is being underestimated by most investors. With shares down close to 18% from 2024 highs, I think there’s a buying opportunity opening up for investors who want to get paid handsomely to wait.
The bottom line
In the new year, I think there are some drivers that management looks forward to as it raises the bar on production while controlling costs. And while Canadian Natural is already one of the lowest-cost producers in the Canadian energy patch, I’d argue that there’s still more room to move the bar even lower. In any case, Canadian Natural is one of the most disciplined deployers of capital out there. As it scales up production with careful consideration for operating efficiencies, I’d not be surprised if shares of CNQ can move higher, even in environments that aren’t exactly booming for oil.
