1 Canadian Dividend Stock Down 15% to Buy and Hold Forever

Given its high-quality asset base, disciplined capital allocation, consistent dividend growth, solid long-term growth prospects, and attractive valuation, CNQ is an excellent buy at current levels for long-term investors.

Key Points
  • Canadian Natural Resources offers a compelling investment opportunity with a strong track record of dividend growth and robust cash flow generation from its large, low-cost asset portfolio, yielding 4.15%.
  • With favorable long-term demand for oil and natural gas, substantial reserves, and strategic capital investments, CNQ is positioned for sustained growth and stability, making it an attractive choice for long-term wealth creation.

The Canadian equity markets have rebounded strongly from their March lows, with the benchmark S&P/TSX Composite Index gaining around 13.5%. Despite this recovery, persistent inflation, renewed geopolitical tensions, and slowing global economic growth continue to create uncertainty. Against this backdrop, dividend stocks can help investors generate reliable passive income while adding stability to their portfolios.

However, not all dividends are equally dependable. Investors should focus on companies with well-established businesses that generate consistent cash flows and a proven track record of paying and growing dividends. These qualities make such stocks well-suited for long-term wealth creation through a combination of steady income and capital appreciation.

With that in mind, let’s examine the business outlook, dividend track record, and growth prospects of Canadian Natural Resources (TSX: CNQ) to determine whether the stock is a compelling buy for long-term investors today.

financial chart graphs and oil pumps on a field

Source: Getty Images

CNQ’s business outlook

CNQ operates a portfolio of large, long-life, low-decline assets that require relatively modest capital reinvestment. Combined with its efficient operations and low-cost structure, this has reduced its operating expenses and breakeven point, supporting strong profitability and cash flow generation. Backed by its reliable financial performance, the company has delivered an average total shareholder return of 16.9% over the past decade.

The energy producer also has an impressive track record of rewarding shareholders through dividend growth and share repurchases. It has increased its dividend at an annualized rate of more than 20% for 26 consecutive years and currently offers a forward dividend yield of 4.2%. Since the beginning of 2021, CNQ has repurchased $14.9 billion worth of shares, reducing its outstanding share count and enhancing shareholder value.

CNQ also delivered strong first-quarter results, with total production rising 4% year over year to 1.6 million barrels of oil equivalent per day (BOE/d). Higher production, coupled with stronger realized oil and natural gas prices amid elevated benchmark prices driven by Middle East tensions, boosted earnings and cash flows. During the quarter, the company generated adjusted net earnings from operations of $2.4 billion and adjusted funds flow of $4.4 billion. Its robust cash generation also enabled further debt reduction, with net debt declining to around $16 billion. Management continues to target a further reduction to $13 billion, which would strengthen its balance sheet and enhance financial flexibility. With its financial position improving, let’s now examine CNQ’s long-term growth prospects.

CNQ’s growth prospects

Amid renewed tensions in the Middle East, energy prices have risen in recent days, benefiting oil and natural gas producers, such as CNQ. In addition, ExxonMobil’s latest outlook projects that oil and natural gas could account for roughly 55% of global energy demand by 2050 despite the ongoing transition to cleaner energy sources. This favourable long-term demand outlook supports CNQ’s growth potential.

CNQ is also well positioned to capitalize on this demand, with more than 5 billion BOE of proved reserves and a reserve life index of 32 years, making it one of the largest reserve holders in the industry. A significant portion of these reserves consists of higher-value petroleum products, supporting stronger revenue and margin potential. To further expand its operations, the company plans to invest approximately $6.9 billion this year and expects total production to average around 1.6 million BOE/d, representing a 4.4% increase from last year. Alongside these investments, CNQ continues to enhance operating efficiency and optimize asset utilization, positioning the company for sustained earnings and cash flow growth in the years ahead.

Investors’ takeaway

CNQ shares have come under pressure in recent weeks as oil prices retreated from their April highs, pulling the stock down by more than 15%. The decline has made its valuation more attractive, with its next-12-month (NTM) price-to-sales and price-to-earnings multiples falling to 2.8 and 9.9, respectively. Given its high-quality asset base, disciplined capital allocation, consistent dividend growth, solid long-term growth prospects, and attractive valuation, I believe CNQ is an excellent buy at current levels for long-term investors.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources. The Motley Fool has a disclosure policy.

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