Your tax-free savings account (TFSA) can be your cash-generating machine in which taxes don’t interfere. But even the cash machine needs to be filled to give you cash. The TFSA allows the money you invest through it to grow tax-free. Dividends earned in it are also tax-free as long as they are Canadian dividends. Dividends from US companies are subject to 15% withholding tax even in a TFSA.
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A 3.2% dividend giant that deserves a larger share of your TFSA portfolio
Tax-free withdrawals make the TFSA ideal for dividend stocks, especially those that grow dividends faster than inflation. One stock that fits a TFSA perfectly is Canadian Natural Resources (TSX: CNQ). The oil and gas company has the largest oil sands field in Canada and enjoys a cost advantage over others.
Investing in one’s strength is the easiest thing you can do. Canada’s strength is low-maintenance, high-output oil sands reserves. Canadian Natural Resources’ strength is to monetize these fields efficiently using technology that keeps costs low. The company keeps reviewing its dividend policy to maximize returns. It began paying regular dividends in 2001 and has been growing them at an average annual rate of 21%.
How did it manage to grow dividends even during the Global Financial Crisis and the pandemic?
The secret behind Canadian Natural Resources’ 21% average dividend growth
Most companies pay dividends from free cash flow (FCF), but Canadian Natural Resources pays dividends from its adjusted funds flow. It deducts dividends, capital expenditure, and abandonment costs from adjusted funds flow to arrive at FCF. As long as the company has positive FCF, it has the flexibility to increase dividends.
In the current upcycle, it is using FCF to pay down debt and buy back shares. The management has set the ratio for debt repayment and share buybacks in its FCF allocation policy. The policy states that the company will use 100% of its FCF on share buybacks if this net debt falls to $13 billion.
As of June 30, 2026, Canadian Natural Resources had net debt of $14.5 billion. It is set to release its third-quarter earnings on November 5. If it generates similar FCF as in the second quarter (~$3 billion), it could reduce debt to the target level and accelerate share buybacks from the fourth quarter.
| Particulars | 2024 | 2025 | Q2 2025 | Q2 2026 |
| Dividends paid ($ millions) | 4,429 | 4,871 | 1,233 | 1,304 |
| Adjusted funds flow ($ millions) | 14,859 | 15,460 | 3,262 | 6,866 |
| Payout ratio | 30% | 32% | 38% | 19% |
| Free cash flow ($ millions) | 4,498 | 3,239 | -79 | 2,975 |
CNQ’s dividends as a percentage of adjusted funds flow remains 30% on average, giving it flexibility to increase dividends by another 10% or more in 2027.
Should you buy this 3.2% dividend stock at its high?
Energy markets are cyclical, as the market determines oil and gas prices. Canadian Natural Resources makes acquisitions, accelerates share buybacks, and repays debt in bullish times when it enjoys a premium price for its production output. During this time, the stock price rallies because of windfall funds flow.
WTI crude is trading above US$100 after Houthi attacks in Saudi Arabia and an oil spill in the UAE revived concerns around the safety of Middle East energy supplies. The higher oil price sent Canadian Natural Resources’ share price to a new high of $77. The share price may correct to $70 when oil prices ease, but not below that as Middle East energy supplies remain stressed.
The way the global energy crisis is escalating, oil prices may remain elevated for years. The short-term volatility may bring a correction, but the ceiling price also seems to be rising from $50 before the pandemic to $65–$70 now. Now is a good time to buy Canadian Natural Resources even near its high; it is growing through acquisitions while paying down debt, making optimum use of windfall cash flows.
