Forget Canadian Natural Resources: Buy This Top Energy Stock Instead

CNQ stock has long been a top choice for those seeking long-term growth and dividends. But the stability of the past doesn’t seem to be in the future.

| More on:

Oil and gas stocks are a significant component of the Canadian stock market, particularly on the TSX. As of 2023, the energy sector, which is heavily dominated by oil and gas companies, accounts for about 15-20% of the TSX. Over the past decade, Canadian oil and gas stocks have experienced considerable volatility, with annual returns ranging from a fall of 30% during downturns, such as the 2020 oil price crash, to over 50% in boom years like 2021-2022, when energy prices surged.

Yet dividend yields in this sector still tend to be relatively high. With many Canadian oil and gas companies offering yields between 4-6%. This makes them attractive to income-focused investors. However, the sector’s performance is closely tied to global oil prices, economic cycles, and regulatory changes. This can lead to significant fluctuations in stock prices and returns. So, perhaps it’s time to look elsewhere.

Is oil out?

When it comes to choosing the right stock for your portfolio, Canadian Natural Resources Limited (TSX:CNQ) and Brookfield Renewable Partners LP (TSX:BEP.UN) present two very different investment opportunities. While CNQ has been a solid performer in the energy sector, there are several reasons why Canadian investors might want to reconsider this choice, especially when compared to BEP.UN, which offers a compelling alternative. Particularly for those interested in sustainable energy and long-term growth.

CNQ is undoubtedly a giant in the oil and gas industry, with a market cap of $104.47 billion and strong financials. It boasts a trailing price-to-earnings (P/E) ratio of 13.97 and a dividend yield of 4.23%. However, the stock’s high beta of 1.92 indicates significant volatility. This could be a concern for risk-averse investors. Furthermore, with a payout ratio of 56.90%, while sustainable, the company’s reliance on the volatile oil market makes its dividends more susceptible to economic downturns and fluctuations in oil prices.

What about renewables?

BEP.UN offers a more stable and sustainable investment option, especially in today’s market where ESG (environmental, social, and governance) factors are becoming increasingly important. With a forward annual dividend yield of 5.85%, BEP.UN not only offers a higher yield than CNQ; it also operates in the renewable energy sector, which is expected to see significant growth in the coming years. Despite a higher payout ratio of 649.02%, the company’s focus on long-term contracts and stable cash flows from renewable energy projects make its dividend more reliable in the long run.

Looking at recent earnings, BEP.UN reported a 23% year-over-year revenue growth in its most recent quarter, reflecting the increasing demand for renewable energy. Although the company reported a net loss of $230 million, the growing revenue and strategic investments in new projects position it well for future profitability. Additionally, with a lower beta of 0.87, BEP.UN offers a less volatile investment compared to CNQ, making it a safer choice for investors looking for stability.

Bottom line

Altogether, while CNQ has been a strong player in the traditional energy sector, the volatility associated with the oil market and the company’s exposure to global economic risks make it a less appealing option for conservative investors. BEP.UN, with its focus on renewable energy and strong growth potential, offers a more attractive investment. Particularly for those interested in long-term, sustainable returns. Whether you’re looking for higher dividends or lower volatility, BEP.UN stands out as the better choice for Canadian investors in the current market landscape.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in Brookfield Renewable Partners. The Motley Fool recommends Brookfield Renewable Partners and Canadian Natural Resources. The Motley Fool has a disclosure policy.

More on Energy Stocks

oil pump jack under night sky
Energy Stocks

Is CNQ Stock a Buy, Sell, or Hold for 2025?

CNQ stock is down in recent months. Is a rebound on the way next year?

Read more »

a person looks out a window into a cityscape
Energy Stocks

2 No-Brainer Energy Stocks to Buy With $500 Right Now

Two low-priced energy stocks can reward investors who have limited capital with far superior returns than expensive peers.

Read more »

canadian energy oil
Energy Stocks

Where Will Suncor Stock Be in 1 Year?

Suncor Energy Inc (TSX:SU) stock is doing well this year. Will it still be doing well next year?

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Best Stock to Buy Right Now: Cenovus vs Baytex?

It may not seem like a good time to buy most energy stocks, but there are always exceptions.

Read more »

A bull and bear face off.
Energy Stocks

Dividend Investors: Top Canadian Energy Stocks for November

These three dividend-payers are on a bullish uptrend.

Read more »

analyze data
Energy Stocks

Buy 8,850 Shares of This Top Dividend Stock for $2,000/Month in Passive Income

Let's do the math on what it would take to generate $2,000 a month in passive income from Enbridge (TSX:ENB)…

Read more »

oil and gas pipeline
Energy Stocks

Is TC Energy Stock a Good Buy?

TC Energy stock has a lot going for it, but there are also a few red flags to consider before…

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

Is Canadian Natural Resources Stock a Good Buy?

CNRL is an energy giant with a market capitalization near $100 billion.

Read more »