We recently published a list of the 10 Cheap Quarterly Dividend Stocks to Buy Now. In this article, we are going to take a look at where Canadian Natural Resources Limited (NYSE:CNQ) stands against other overlooked dividend stocks.
In the current market environment, investors are looking to seek stable income as a way to protect themselves against a possible recession. Business surveys from ISM and S&P Global have highlighted increasing concerns among companies about the impact of new tariffs, with the S&P Global survey projecting an annual GDP growth rate of only around 1% for the first quarter. While most forecasts predict growth of 0.5%, some nowcasting models indicate the possibility of a contraction. Markets are particularly focused on how the US administration will address the growing recession risks, especially regarding its approach to tariffs and trade agreements.
In addition, despite President Donald Trump’s decision to pause a significant tariff increase on multiple countries, Americans continue to fear a recession and rising inflation. Consumer sentiment dropped 8% in April compared to the previous month, reaching a final reading of 52.2, according to the University of Michigan’s latest survey. This level of sentiment marked the fourth-lowest in records dating back to 1952. Joanne Hsu, the survey’s director, made the following comment in the release:
“While this month’s deterioration was particularly strong for middle-income families, expectations worsened for vast swaths of the population across age, education, income, and political affiliation. Consumers perceived risks to multiple aspects of the economy, in large part due to ongoing uncertainty around trade policy and the potential for a resurgence of inflation looming ahead.”
Analysts suggest that investors worried about an economic slowdown might want to consider investing in dividend-stock funds, as these stocks have historically performed relatively well during recessions. Companies that pay dividends usually generate enough excess cash flow to sustain payments year after year. Dividend programs are often seen as a sign of strong financial discipline, as companies committed to paying dividends are generally hesitant to alter their policies. According to a Morningstar report, dividend-paying stocks outperformed the broader market during the recessions that began in July 1981, March 2001, and December 2007, with the stocks doing significantly better in two of those periods. However, they slightly underperformed during the short recession of 1980, which followed the Federal Reserve’s interest rate hikes to control the high inflation of the 1970s.
Within dividend investing, dividend growth stocks have outperformed those with high yields. A Morningstar report noted that dividend growth funds provided the most appealing long-term returns, as seen in the data presented. These funds not only offered the highest total returns but also achieved the best balance of risk and return, as measured by the Sharpe ratio. The report also pointed out that dividend growth strategies have generally performed the best during recessions. Except for 2001, when their greater exposure to technology stocks became a disadvantage, dividend-growth funds performed better than other dividend categories during recent recessionary periods.
A vast oil rig pumping crude oil during a sunset, emphasizing the company’s focus on oil & gas exploration and production.
Our Methodology
For this list, we screened for dividend companies with strong dividend histories and yields of at least 1%, as of April 27. From that list, we picked dividend stocks with forward P/E ratios below 20, as of April 27. The low price-to-earnings ratio shows that they are traded below their intrinsic value. The stocks are ranked in descending order of their P/E multiples.
At Insider Monkey, we are obsessed with hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Canadian Natural Resources Limited (NYSE:CNQ)
Forward P/E Ratio as of April 27: 11.98
Canadian Natural Resources Limited (NYSE:CNQ) is a leading producer of crude oil and natural gas, with ongoing operations in its key regions, including Western Canada, the UK section of the North Sea, and Offshore Africa. The energy company benefits from a strong asset portfolio, featuring a well-diversified production mix and long-lasting, low-decline resources that support its consistent dividend payments. These assets allow the company to generate stable cash flow and maintain operational flexibility, even during fluctuations in commodity markets. Furthermore, the increased output from its high-value synthetic crude operations, which have zero decline, helps to sustain steady cash generation and keep reserve replacement costs low.
Canadian Natural Resources Limited (NYSE:CNQ) showcased its financial strength, generating over $3.4 billion in operating cash flow during the latest quarter, up from $3 billion the previous year. By the end of fiscal 2024, the company had produced $4.5 billion in free cash flow. This strong cash performance enabled Canadian Natural Resources Limited (NYSE:CNQ) to return $1.7 billion to shareholders through dividends and share buybacks.
In March, Canadian Natural raised its quarterly dividend by 4.4% to C$0.5875 per share, marking the 25th consecutive year of dividend growth. The stock has a forward P/E ratio of 12, which makes it one of the best cheap quarterly dividend stocks. As of April 27, Canadian Natural Resources Limited (NYSE:CNQ) supports an attractive dividend yield of 5.58%.
Overall, CNQ ranks 9th on our list of the best cheap quarterly dividend stocks. While we acknowledge the potential of CNQ as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than CNQ but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.