Canadian investors focused on passive income and total returns are wondering which TSX dividend stocks might be undervalued and are good to buy right now for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
In the current market environment, it makes sense to look for sector leaders with long track records of delivering dividend growth throughout the economic cycle.
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Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) is a giant in the Canadian energy sector with a current market capitalization of nearly $95 billion. The stock trades close to $45 at the time of writing, compared to a high of around $55 last year.
CNRL is best known for its extensive oil production operations. The company owns oil sands, conventional light and heavy oil, and offshore oil assets. In addition, CNRL is a major player in the Canadian natural gas sector with production, infrastructure, and vast reserves in Western Canada.
The diversified product portfolio and CNRL’s position as the sole or majority owner of most of its assets are key to the company’s success. Management has the flexibility to quickly shift capital to take advantage of beneficial moves in commodity prices. At the same time, CNRL’s size and balance sheet strength enable it to make strategic acquisitions to drive revenue growth and expand the reserve base when energy prices are under pressure. For example, CNRL spent US$6.5 billion last year to buy Chevron’s Canadian assets.
Management has done a good job of boosting output in 2025 through a combination of deals for assets and successful drilling programs. Oil and natural gas production in the third quarter (Q3) of 2025 came in at record levels. The rise in production has helped offset the impact of lower energy prices. For the first nine months of 2025, CNRL generated adjusted net earnings from operations of $5.733 billion compared to $5.437 billion in the same period last year.
Dividends and share buybacks
After the closing of the Chevron Canada deal, CNRL adjusted its policy for distributing free cash flow. Under the current guidance, the company plans to allocate 60% of free cash flow to shareholders and 40% to the balance sheet until net debt falls to $15 billion. This switches to 75% and 25% respectively, when net debt is between $12 billion and $15 billion. When net debt reaches $12 billion, the company will allocate 100% of free cash flow to shareholders. CNRL reported net debt of about $17 billion at the end of Q3 2025.
CNRL raised the dividend in each of the past 25 years. At the current share price, investors can get a dividend yield of 5.2%.
Outlook
Analysts broadly expect oil prices to remain under pressure into 2026. Record production in Canada and the United States, along with a supply increase from OPEC members, will likely result in surplus conditions as demand from China remains weak and economic risks put pressure on global oil consumption.
That being said, Canadian oil and natural gas producers are getting more pipeline capacity to reach buyers. Brownfield expansion projects on existing oil transmission infrastructure and the construction of new liquified natural gas (LNG) export facilities will enable CNRL and its peers to boost output in the coming years.
CNRL remains very profitable at current oil prices, and there is big upside potential when the market rebounds.
The bottom line
Near-term headwinds are expected for energy prices, but CNRL should be a solid pick right now for contrarian investors focused on dividends and long-term total returns. If you have some cash to put to work, this stock deserves to be on your radar.
