Canadian Natural Resources (CNQ -0.34%) doesn't have anywhere near the name recognition of leading big oil giants such as ExxonMobil (XOM -1.54%), Chevron (CVX -0.76%), BP (BP -0.70%), and Royal Dutch Shell (RDS.A) (RDS.B), even though it's the top oil and gas producer in its native Canada. Because most investors have overlooked the company, they're missing out on its big-time yield of 7.3%.
That's one of the more attractive payouts among the major oil producers, not only for its size but also for its sustainability. Here's why dividend investors will want to take a closer look at this leading Canadian oil stock.
A long history of dividend growth
Oil dividends are notoriously volatile. While Exxon and Chevron have managed to continue increasing theirs for more than 30 years, BP has kept its flat for long periods, and Shell recently slashed its payout due to the downturn in the oil market. The sector's spotty dividend history makes Canadian Natural Resources' current growth streak of 20 years quite impressive.
What's even more spectacular about the Canadian oil producer's dividend growth is the rate. It has increased its payout at a 20% compound annual growth rate over the last two decades, including by 13% this year. For comparison's sake, Exxon has increased its payout at an average rate of 6.2% for the last 37 years, including 6.2% last year, while Chevron's latest increase was 8.4% and BP's was an even more modest 2.4%.
Sustainable in the current environment
This year's crash in crude prices forced several oil companies to slash their dividends, with Shell as the headliner. More payouts are at risk of a reduction. For example, investors are increasingly concerned whether BP, Exxon, and Chevron can maintain their payouts (which yield 11.1%, 8%, 6%, respectively). That's because they're not currently generating enough cash to cover their dividends and capital spending programs, the latter of which they've reduced to help narrow the gap. Overall, most top global oil producers need the U.S. oil price benchmark to average between $38 and $75 a barrel this year to support both their capital spending plans and dividends.
On the other hand, Canadian Natural Resources has the lowest breakeven level in its peer group. It only needs the U.S. crude oil benchmark to average $31 a barrel this year to support both capital spending and its dividend. With its price point currently much closer to $40 these days, Canadian Natural's payout is on a firm foundation.
Furthermore, given the current oil price, the company is producing some free cash flow, which it can use to firm up its already strong balance sheet. While the company doesn't boast quite as high a credit rating as its big oil rivals, it still has one of the stronger financial profiles in the oil patch.
Thanks to its currently low oil price breakeven level and strong balance sheet, Canadian Natural Resources has lots of wiggle room to increase its dividend again over the next year. That's not the case for many of its rivals. Both Exxon and Chevron might at best offer token increases in the next year to keep their current streaks alive while a best-case scenario for BP would be for it to hold the line by maintaining its payout. However, if crude prices take another tumble, these oil companies might need to adjust their dividends.
A lower-risk high-yielding oil stock
Canadian Natural Resources has been a great dividend stock over the past two decades. It has all the making of continued excellence given its low oil price breakeven level and rock-solid balance sheet. It offers yield-seeking investors an enticing option in an industry that has been a tough place for dividends in recent years.