Canadian Natural Resources (TSX:CNQ) is down about 9% in the past six months. Contrarian investors are wondering if Canada’s largest energy company is now undervalued and good to buy for a self-directed portfolio focused on dividends and total returns.
CNRL stock trades near $47.50 at the time of writing, giving the Canadian energy giant a market capitalization of close to $100 billion. The shares have traded between $40 and $56 over the past year.
Weakness in recent months is largely due to the decline in oil prices. At the time of writing, West Texas Intermediate (WTI) oil trades near US$68 per barrel. It was as high as US$86 in April. The decline is due to a combination of lower demand from China and higher production from several countries, including Canada and the United States.
Analysts broadly expect the oil market to have ample supply in 2025, based on the demand outlook and anticipated production growth in non-OPEC countries. This will likely provide a headwind for oil prices. Geopolitical turmoil, however, could change the situation. Market watchers are concerned that Israel might strike Iran’s oil infrastructure. Iran might also decide to block the Strait of Hormuz, where 20% to 30% of the world’s oil supply passes on its way to international markets. A major disruption in the Middle East could send oil prices significantly higher, at least in the short term.
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Growth
CNRL continues to expand its assets in Canada. The company recently announced a US$6.5 deal to acquire Chevron’s Alberta operations. The purchases include Chevron Canada’s 20% interest in the Athabasca Oil Sands Project (AOSP), bringing CNRL’s ownership of the asset to 90%. In addition, CNRL is picking up Chevron’s 70% operated working interest in light oil and gas liquids assets in the Duvernay play, giving CNRL a boost to free cash flow and opportunity for expansion.
On the export side, CNRL should benefit in the coming years from two new pipelines that will enable the transport of oil and natural gas to international buyers. The opening of the Trans Mountain pipeline expansion earlier this year significantly increased the capacity for moving oil and refined products to terminals on the West Coast. In 2025, the Coastal GasLink natural gas pipeline is expected to go into commercial operation and will move natural gas from Canadian producers to a new liquified natural gas (LNG) export facility being built on the Coast of British Columbia. CNRL is widely known for its oil assets, but it is also a major Canadian natural gas producer.
Dividends
CNRL just announced a 7% dividend increase for 2025. This is the 25th consecutive year the board has increased the distribution with a compound annual growth rate of 21% over that timeframe. That’s a great track record in an industry that relies on volatile energy markets.
Investors who buy CNQ stock at the current level can get a dividend yield of 4.7%.
Should you buy CNRL now?
Near-term turbulence should be expected due to the weak outlook for oil demand from China and the strong supply conditions in the global market. That being said, CNRL remains very profitable, continues to grow, and is increasing its free cash flow to shareholders as its net debt position declines. If you have some cash to put to work, this stock deserves to be on your radar at the current level and pays a solid dividend while you wait for the next rebound.
