With a dividend yield of 4%, Suncor Energy (TSX:SU) is quite popular among income-seeking investors in Canada. Moreover, in the last two decades, the Canadian energy stock has increased its dividend payouts by 15% annually, which is exceptional. Since August 2004, Suncor stock has returned close to 400% to shareholders if we adjust for dividend reinvestments. However, Suncor Energy has trailed the TSX index, which has returned 411% to investors in this period.
Despite its impressive dividend growth, Suncor Energy was forced to lower its dividends by 55% when crude oil prices fell off a cliff at the onset of COVID-19. As dividend payouts are not guaranteed, it’s crucial to invest in companies that can maintain and even raise dividends amid economic downturns.
Here is one TSX dividend giant I’d buy over Suncor Energy stock right now. Let’s see why I’m bullish on Canadian Natural Resources (TSX:CNQ) at its current valuation.
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Is Canadian Natural Resources a good buy?
Valued at $103 billion by market cap, Canadian Natural Resources has crushed broader market returns, surging over 1,500% in the last 20 years after adjusting for dividend reinvestments. Despite its stellar gains, CNQ stock offers a tasty dividend yield of 4.3%, given its annual dividend payout of 4.2%.
Canadian Natural Resources owns and operates a diversified portfolio of assets in North America, the U.K. portion of the North Sea, and Offshore Africa, which enables it to generate significant value for shareholders.
Its balanced mix of natural gas, light crude oil, heavy crude oil, bitumen, and synthetic crude oil represents one of the most robust and diversified asset portfolios of any independent energy producer.
Canadian Natural Resources completed the transition of long-life, low-decline asset base through the development of its oil sands mining, vast thermal in situ opportunities and expansion of its polymer flood project at Pelican Lake.
A strong performance in Q2 of 2024
In the June quarter, Canadian Natural Resources delivered strong results, which included adjusted net earnings of $1.9 billion and adjusted funds flow of $3.6 billion, driving significant returns to shareholders totalling $1.9 billion. Comparatively, it paid shareholders $1.1 billion in dividends, indicating a payout ratio of less than 50%.
Canadian Natural Resources aims to return 100% of its free cash flow to shareholders as its net debt exceeds the management target of $10 billion. CNQ has increased its dividends every year for the last 24 years. In this period, its dividends have risen by 21% annually.
Earlier this year, Canadian Natural Resources produced its one billionth barrel of bitumen since operations began in 2009. At the end of 2023, its significant synthetic crude oil reserves totalled 6.9 billion barrels, with a reserve life index of 44 years.
Is CNQ stock still undervalued?
Priced at 10.5 times forward earnings, CNQ stock is relatively cheap, given its adjusted earnings are forecast to expand from $3.78 per share in 2024 to $4.61 per share in 2025. Analysts remain bullish on CNQ stock and expect it to gain over 15% in the next 12 months.
