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TSX energy stocks have generously rewarded investors in recent years, even while markets have been declining for months. Canadian Natural Resources (TSX:CNQ), the country’s largest energy producer by market capitalization, has not been an exception. Here are five characteristics that make it stand out in the market today.
Quality assets and production
With low-decline assets, Canadian Natural’s production mix is 78% liquids-weighted. It outperforms the average of its rivals with a confirmed reserve life index of approximately 30 years. In 2022, it plans to generate 1.3 million equivalent barrels of oil.
Since the pandemic, crude oil has increased, providing energy producers with unexpected free cash flows. Depending on the geological structure of their assets, upstream firms produce different types of oil. Light, heavy, synthetic crude oil, natural gas, and natural gas liquids are among the several product categories offered by CNQ.
Strong positive correlation
The price of WTI (West Texas Intermediate) crude oil has a significant positive association with the CNQ stock. In the past three years, these two have had a correlation coefficient of about 0.6. Theoretically, if the price of WTI crude oil increases by 1%, the CNQ stock should increase by 0.6%.
Higher oil prices also contribute to higher producer earnings aside from the stock market activity. Compared to 2021, Canadian Natural plans to expand production by 7% this year. Therefore, increased output and rising energy commodity prices will probably continue to support company profitability.
Financial growth
In comparison to the previous 12 months, CNQ generated free cash flows of $12.5 billion, a respectable 125% rise. These cash flows were mostly used by the corporation for debt repayment. Because of this, its balance sheet has seen a major improvement, making it much more attractive to investors.
At the end of 2020, Canadian Natural’s net debt was $23 billion, and at the end of the second quarter of 2022, it was $13.5 billion. Getting out of debt means spending less on interest and making more money.
Oil companies like CNQ will probably experience robust financial growth for the upcoming quarters as long as oil prices remain in the $90 range.
CNQ Dividends
Oil producers have generously rewarded shareholders with dividends this year because they are loaded with cash. Compared to 2021, CNQ increased its annual dividends by 50%. In addition to the standard dividend, it also declared a special dividend of $1.5 per share, bringing the total annual payout for 2022 to $4.5 per share.
CNQ continued to increase its dividend even throughout the pandemic in 2020, demonstrating its strong balance sheet and earnings visibility. As a result, many energy companies cut back on or suspended their shareholder dividends in order to save money. Take note that for the past 22 years in a row, CNQ has increased its payouts.
Valuation
The 45% return on CNQ stock over the past 12 months is comparable to that of its peers. At the moment, it is trading at a multiple of seven times earnings and four times cash flows. From a cash flow standpoint, CNQ does not appear to be significantly cheap. However, a rise in oil prices and the consequent expansion of the economy might boost the stock.
CNQ’s strong asset base and strengthening balance sheet are what make it stand out in the current environment. These two will fuel its dividend growth and, in the long run, produce large total returns.
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