The market might be at fresh new highs, but some dividend stocks are still well off their peak levels. Whether or not they’ll catch up with the broader indices, though, remains the big question. In this piece, we’ll have a closer look at one name that might be worth buying as shares find their way upwards after a recent spill.
While some of the names may be more obvious (they’re well represented in your average TSX Index ETF), I do think it’s worth overweighing a position, especially if you perceive that there is a relative discount to be had. Even in hot markets at new heights, there’s still value out there, and here is one on my radar.
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Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) is coming off a hard week, with shares nosediving more than 7% on Friday’s session, as oil prices took a dive after encouraging developments over the Strait of Hormuz. At this juncture, the market is soaring, and the oil shock seems to be yesterday’s news. And while some investors who piled into the energy producers might be feeling the heat, I do think that there is value to be had by buying the pullback.
Even with oil at around US$85 per barrel, a firm like Canadian Natural faces some pretty strong tailwinds at its back as its cash flows look to surprise to the upside in the coming quarters. Of course, it would have been more profitable had oil stayed well above US$100. However, if you bought the stock hoping for such levels to stick around for longer, the latest slip in oil stocks might be a rude awakening.
While I’m not sure how low oil can go, I do think that things are starting to get a bit overblown, especially when it comes to CNQ shares. In a prior piece, I suggested that CNQ stock would be better bought on a dip, perhaps after a dip in oil prices as a result of resolving tensions in the Middle East.
Though there’s certainly potential for oil to make a move to US$70 per barrel, I’d say that much of the momentum reversal is already priced into a name like CNQ.
Bottom line
The stock has lost 10% of its value in the past week, and while I’m not calling a bottom, I just think the value proposition looks better as the market looks ahead to a swift de-escalation in geopolitical turmoil.
Things escalated quickly in March, but the situation may very well de-escalate just as quickly. I said waiting for a dip was the move more than a week ago, and after a nearly 16% fall from its peak, I do think it might start nibbling if you’ve been watching the name closely. The time has come, at least in my view.
The dividend yield is near 4%, and the trailing price-to-earnings (P/E) multiple has become quite low at 11.4 times. While I wouldn’t back up the truck right here, I do think that a quarter of a position could prove wise as CNQ stock comes in, wiping out much of the premium the name commanded when there was fear of a longer-lasting oil shock.
