It’s not just you; it is becoming just a bit harder to find stellar large-cap blue chips with dividend yields well north of the 4% mark these days. Indeed, the hunt for yield is getting a bit tougher, and as the Bank of Canada stays on pause while the TSX Index continues to rally, it’s tough to gauge where that new “high bar” for yields will be for Canadian stocks.
Either way, though, there are still fantastic dividend gems out there, and they’re still hiding in plain sight. Of course, it’s a good idea to keep buying on the way down if you’re targeting a dividend heavyweight and want to average down your cost basis while averaging up your dividend yield.
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Canadian Natural Resources
When it comes to compelling dips for value seekers, I think a name like Canadian Natural Resources (TSX: CNQ), stands out as timely, especially now that its dividend yield is creeping higher again. The stock had another rough session on Thursday, plunging just north of 3%.
Now off around 17% from all-time highs hit back in the middle of May, the $120 billion Canadian energy giant could soon find itself in a deeper bear market moment, but investors, especially those who crave more income, should not hit the panic button. In fact, a moment like this ought to be relished by those who’ve been longing for the days when a blue chip like Canadian Natural Resources yields closer to 5% again.
With an Iran peace deal and the Strait of Hormuz reopening hogging the headlines while oil prices retreat further, it certainly feels like shares of CNQ and just about any other big energy producer could be in for greater declines. Just how much of the year-to-date gains will be wiped out, though, remains the big question.
Either way, CNQ stock is starting to look incredibly cheap again, even if West Texas Intermediate oil dips significantly below the US$75 per barrel mark. I think there’s a realistic chance of US$55-65 oil again, especially if flows through Hormuz get back up to full speed faster than pundits expect.
A slow, steady reopening might be the likeliest case, but, then again, anything is possible, and energy investors should be prepared for volatility. Even as a peace deal gets inked, I think that energy remains a must-own for long-term thinkers, and CNQ is a go-to bet for more than just the generous dividend payout.
Too cheap to pass up, even as oil sags?
At the time of this writing, CNQ stock trades at 11.3 times trailing price to earnings. As oil stabilizes and CNQ does its best to optimize operations, I think it’s worth nibbling into a position, even as the floor of support at around $46-48 per share gets hit again, should the potential double-top reversal pattern actually come to fruition.
Sure, there’s great risk here, but, then again, the dividend is robust, and for those willing to keep averaging down, perhaps the sheer negative momentum might cloud the true long-term narrative. The firm is chipping away at its debt, and even with lower oil, CNQ looks like a champion, one that can keep raising the bar on its payout.
