CNQ Stock: Why it’s the Best Energy Stock to Own Today

Canadian Natural Resources is an energy stock that will likely continue to provide shareholders with above average long-term returns.

Karen Thomas, MSc, CFA ❯

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published November 2, 2023 9:30 pm EDT

Canadian Natural Resources Ltd. (TSX:CNQ) is one of Canada’s premier oil and gas companies. In fact, it’s history of stability, strong returns, and shareholder value creation speaks volumes to the quality we get when we invest in CNQ stock on the TSX.

Here’s a little more detail on the reasons why Canadian Natural Resources stock is the best energy stock to own.

Stability that spans decades

Backed by a high quality, low-risk oil and gas assets, Canadian Natural has delivered stability. This is made possible because CNQ’s assets are long life assets that have a low decline rate. Let’s look into this.

Oil and gas assets naturally have a decline rate. This means that with each passing year, the asset’s production falls a certain amount. A high decline rate means rapidly falling production, and a low decline rate means slowly declining production. As you can imagine, assets with high decline rates need a lot of capital investment to fight the decline and assets with low decline rates require little investment to keep the production going. This, in turn, increases the life of the asset and the returns for the producer.

So back to CNQ. In fact, 77% of CNQ’s reserves are of this nature. This characteristic brings stability to the company, both in up cycles as well as down cycles of the oil and gas industry.

CNQ stock is going strong, as results continue to impress

Not surprisingly, CNQ stock has been performing quite well. The graph below highlights the stock’s performance over the last 20 years. In this graph, we can see the relative stability of the stock price.

Just this morning, Canadian Natural Resources reported its third quarter 2023 results. The results beat expectations, and they prompted another dividend increase for CNQ stock. This 11% dividend increase takes the annual dividend to $4.00 per share and the dividend yield to just over 4%. It’s also the 24^th consecutive year of dividend increases, with a compound annual growth rate (CAGR) of 21% over that time period.

The strength of the company was also once again reflected in its cash flow performance for the quarter. Free cash flow came in at approximately $2.7 billion after dividend payments and capital expenditures. This cash continues to be used to pay down debt, and the company expects its debt to fall to its $10 billion target in Q1 2024. At that time, 100% of free cash flow will be allocated to shareholder returns.

Oil remains above $80

With oil remaining above $80, Canadian Natural stands to continue to benefit from strong pricing. This, mixed with the company’s own operational and financial excellence is resulting in a perfect storm brewing. In fact, not only is CNQ stock set to benefit from strong oil prices, it’s also setting up to significantly ramp up shareholder returns through increased dividends.

The bottom line

Trading on the TSX and NYSE, CNQ stock has been a great example of the returns that energy stocks can provide for shareholders, making it one of the best energy stocks to buy today.