Canadian Natural Resources (TSX:CNQ) is up more than 10% in recent weeks. Investors who missed the bounce are wondering if CNQ stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and long-term total returns.
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CNQ share price
CNRL trades near $44 per share at the time of writing. The stock hit a 12-month low of around $38 in early March and is still way off the 12-month high above $56.
Most of the pullback is due to weaker oil prices. West Texas Intermediate (WTI) oil trades near US$68 today compared to more than US$85 last spring. Weak demand in China has combined with rising production in non-OPEC suppliers, including Canada and the United States, to pressure prices.
The market also reacted unfavourably last year to CNRL’s decision to buy Chevron Canada’s assets for US$6.5 billion in a cash deal that provided a boost to production and reserves but also added debt to the balance sheet. As a result, it will take longer for CNRL to raise the amount of cash it is returning to shareholders. Oil investors are increasingly calling on energy companies to hand over profits rather than using funds to finance acquisitions or expand production.
Risks
The Trump administration is pushing for more supply to keep oil prices down in an effort to reduce fuel prices in the United States to combat inflationary pressures that could arise from new broad-based tariffs. An economic downturn caused by the tariffs could cut into fuel demand and put additional pressure on oil prices.
Opportunity
CNRL has a strong track record of making large acquisitions during downturns in the market and reaping the rewards when oil prices rebound. That could turn out to be the case for the Chevron Canada deal.
Looking ahead, the opening of the Trans Mountain expansion last year is providing Canadian oil producers with added capacity to reach international buyers. New liquified natural gas (LNG) export facilities will go into operation in 2025. This will boost export capacity for natural gas producers. CNRL is known for its oil production, but it is also a major player in the Canadian natural gas segment.
Tariff and annexation threats from the United States are driving renewed interest in building east-west oil and gas pipelines across Canada. If projects get the green light, CNRL will benefit.
Dividends
CNRL raised its dividend twice in 2024 and recently bumped the payout by another 4%. The board has increased the dividend for 25 consecutive years. Investors who buy CNRL stock at the current price can get a dividend yield of 5.3%.
Should you buy CNQ stock now?
Oil prices will likely remain under pressure in the coming months, and there is a risk of a recession later this year if a trade war extends for months. As such, I wouldn’t back up the truck today.
That being said, contrarian investors might want to start nibbling while the stock is still out of favour and then look to add on additional downside. Buying CNRL on meaningful dips can produce solid long-term returns and you get paid well to ride out the turbulence.
