Average annual gains of 21% will add up over time. Just look at Warren Buffett's Berkshire Hathaway, which managed an average annual return of 20.9% from 1965 to 2017, according to Buffett's 2018 letter to shareholders. That average return snowballed over the decades into a 2,404,748% gain.
The same compounding magic applies to the dividend paid by Canadian Natural Resources (CNQ 1.00%). Since 2001, the oil and gas company has raised its dividend by an average of almost 21% a year. Over that 24-year stretch, the company's dividend has swelled by 9,300%. Anyone who invested $100 in mid-2001 and held on to those shares would be collecting $2,557 in annual dividends today.
NYSE: CNQ
Key Data Points
Capital appreciation naturally followed, since those payout hikes, sustained over decades, are only possible if earnings also grow at a similar rate. Sure enough, Canadian Natural Resources shares have roared 4,232% higher since mid-2001.
After growth of this magnitude, it's natural to wonder if the party is over. But there are three reasons to think that this prodigious dividend growth can continue in the years ahead.
1. Improving productivity leading to growing earnings
As an oil and gas company involved in the acquisition, exploration, development, production, and sale of crude oil and natural gas, Canadian Natural Resources has implemented vertical integration, the business practice pioneered by J.D. Rockefeller. Because it operates at every step of the supply chain, from gathering raw materials to refining, distributing, and even marketing them, Canadian Natural Resources has opportunities to wring out inefficiencies at every stage of the process.
The company has also been a natural beneficiary of the artificial intelligence (AI) revolution, which has helped drillers to analyze seismic and geological data to find drilling locations much more quickly, thereby slashing exploration risk and costs. AI interpretations of well log data and seismic surveys are completing, sometimes in mere hours, geological analysis that used to take months.
AI can also help anticipate equipment failures and sharply reduce unplanned downtime during production, which can cost upstream companies an average of $38 million each year.
Image source: Getty Images.
You can see the impact of AI in the company's supercharged production. In its Q3 earnings conference call last month, Canadian Natural Resources reported record quarterly production of 1.62 million barrels of oil equivalent (BOE), a 19% increase year over year. At the same time, its operating costs for natural gas operations in North America fell by 7%, while operating costs for heavy crude oil fell by 12%.
All told, the company enjoys an industry-leading operating cost of around $21 per barrel. It's easy to envision that falling further as more AI drilling technologies are harnessed.
2. A bold share-buyback program
Last March, the company announced that the Toronto Stock Exchange had accepted notice of its intention for a Normal Course Issuer Bid, a Canadian program that lets companies buy back shares from the market over a 12-month period, subject to regulatory approval and purchase limits. The notice provides that the company may buy back up to 10% of its float, or about 178.7 million shares.
Share buybacks are shareholder-friendly in that they boost earnings per share, therefore helping to lift share price. They also can make dividends more sustainable, since the company is paying out dividends on fewer shares than before.
There's no guarantee that management will decide to repurchase all of those shares. But in Q3, it repurchased about 7.2 million common shares, spending $300 million on the buybacks. In Q2, it repurchased 8.6 million shares, and we'll find out in mid-2026 how many shares it repurchases in the last three-month stretch of its Normal Course Issuer Bid window.
While hefty, those repurchases are a far cry from 178.7 million shares, even accounting for the time remaining. It's speculation on my part, but it's possible that management expects the stock to dip as oil prices fall in 2026, therefore putting shares at a discount and ripe for repurchasing.
That was the strategy it pursued during the 2014-2015 oil supply glut, when prices were in the basement following OPEC's price war. Like this year, it filed a Normal Course Issuer Bid that allowed it to repurchase 23 million shares.
3. A $4.3 billion war chest
You might be wondering, if I expect the share price to dip in 2026, why do I consider Canadian Natural Resources to be a buy?
While the math behind global oil production indicates that we're in the early days of a supply glut that would drive down oil prices, and therefore earnings and share price for oil and gas firms, that can actually present a great opportunity for the best-managed companies with solid balance sheets.
Last month, the company reported over $4.3 billion in liquidity, which can be used to shore up dividends, buybacks, and mergers and acquisitions. The last part is interesting. In 2014, it was able to increase proved and probable reserves to 8.9 billion BOE, replacing a staggering 413% of production, through successfully integrating higher-cost production volumes that year.
With OPEC deciding to hold current production quotas steady through 2026, while the United States continues to smash production records, a lot of oil and gas companies could come on sale if prices dip to the low $50s-per-barrel level that Goldman Sachs expects next year.
This war chest means that Canadian Resources has a cushion to not only survive a potentially rocky stretch for the industry, but to emerge from it stronger than before thanks to savvy acquisitions. In fact, it may have already started. Its North American light crude oil and natural gas liquids segment saw production ramp up by 69% last quarter, a difference of 79,000 barrels per day, thanks in part to its Duvernay and Palliser Block acquisitions.
Another cushion for this company is its industry-leading operating cost of around $21 per barrel, which will help it remain profitable even if the biggest bears on oil prices are right. While falling oil prices may lead to volatility in share price in the months ahead, I see this as a huge opportunity for long-term investors who pounce on the company's 4.8% dividend yield today.
