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2022/06/01

A 3.7%-Yielding Canadian "Beaut"

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AN OXFORD CLUB PUBLICATION

Wealthy Retirement

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There's a Lot to Like "Aboot" This 3.7%-Yielding Dividend

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

My daughter has been in love with Canada since she was little. And I've enjoyed everywhere I've visited in the United States' northern neighbor. The Canadian Rockies are one of the most beautiful places on the planet that I've visited. Plus, Canada boasts Martin Short, Kids in the Hall and William Shatner as native sons - so there's a lot to like about Canada.

But just because we Lichtenfelds have a fondness for Canada doesn't mean I'm going to take it easy on a Canadian company's dividend safety rating.

Canadian Natural Resources (NYSE: CNQ) is a 33-year-old producer of oil and gas, and it's one of the largest independent producers in Canada.

With oil and gas prices surging, it's no shock that free cash flow is booming.

This year, Canadian Natural's free cash flow is expected to jump to CA$14.7 billion from CA$10 billion.

Chart: Canadien Natural Resources' Free Cash Flow
 

In 2021, Canadian Natural paid out CA$2.4 billion in dividends for a low payout ratio of 24%. I like that Canadian Natural keeps its payout ratio low when it's in a boom-and-bust business, where free cash flow can fluctuate wildly depending on energy prices.

That low payout ratio enables Canadian Natural to consistently raise its dividend every year, including during some tough times, like when oil plummeted in 2015 and again in 2020, as well as during the Great Recession in 2008.

When it comes to dividend hikes, Canadian Natural consistently delivers like Wayne Gretzky on a breakaway. The company has boosted its dividend every year for 21 years.

The current quarterly dividend is CA$0.75, which, on an annual basis, comes out to $2.35 in U.S. dollars. That gives the stock a yield of 3.7%.

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So is the dividend safe?

Is Ryan Reynolds handsome?

Is Jim Carrey wacky?

Can Celine Dion sing?

The answers to all of the above are yes.

Canadian Natural Resources has plenty of free cash flow, a low payout ratio and a long track record of dividend hikes.

It's yet another reason to like Canada.

Dividend Safety Rating: A

Dividend Grade Guide
 

If you have a stock whose dividend safety you'd like me to analyze, leave the ticker symbol in the comments section.

And be sure to check out the Wealthy Retirement website to see if we've written about your favorite stock lately. Just click the magnifying glass at the top right part of the page, type in the company name and hit enter.

Good investing,

Marc

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