A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Canadian Natural Resources Limited (TSE:CNQ) has been paying a dividend to shareholders. Today it yields 3.7%. Let’s dig deeper into whether Canadian Natural Resources should have a place in your portfolio.
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Here’s how I find good dividend stocks
When researching a dividend stock, I always follow the following screening criteria:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Canadian Natural Resources fare?
Canadian Natural Resources has a trailing twelve-month payout ratio of 42%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 90% which, assuming the share price stays the same, leads to a dividend yield of 4.4%. In addition to this, EPS should increase to CA$3.65. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward. However this does bring about uncertainty around the sustainability of the payout ratio.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. CNQ has increased its DPS from CA$0.20 to CA$1.34 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, Canadian Natural Resources produces a yield of 3.7%, which is on the low-side for Oil and Gas stocks.
With these dividend metrics in mind, I definitely rank Canadian Natural Resources as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three fundamental factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for CNQ’s future growth? Take a look at our free research report of analyst consensus for CNQ’s outlook.
- Valuation: What is CNQ worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CNQ is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.