Canadian Natural Resources Ltd. (TSX:CNQ) has perfected its business to the point where free cash flows are flowing, dividends are rising, and returns for all stakeholders are soaring.
In today’s oil and gas world, it has become increasingly common for companies to focus on returns. This has made them more profitable and efficient. What was once a capital-intensive business that sought production at virtually any price has become a business focused on returns. This in turn has led to a new focus for the energy sector: investor/stock returns.
Cash is king
There is no escaping the fact that Canada’s natural resources sector is in a cyclical sector – one that is notorious for financial and stock fluctuations due to volatile oil and gas prices. But Canadian Natural is truly in a class of its own – one characterized by stability, predictability and abundant cash generation.
Canadian Natural’s second quarter 2025 results once again fully reflected these characteristics. Adjusted cash flow was $3.3 billion and free cash flow, which is calculated as operating cash flow minus capital expenditures, was $1.4 billion. For the first six months of the year, the results look even better. Adjusted cash flow was $7.8 billion, up 15.4% from the same period last year. Free cash flow came in at $4.6 billion, up 14% from the previous year.
Finally, earnings per share (EPS) for the second quarter came in at $0.71. This was 14.5% higher than what the market expected. But what drives these strong results?
A first-class asset base
Canadian National is squirting out cash. But this isn’t something that happened by accident; it’s by design. You see, the company is benefiting from its lucrative asset base. It is a diversified asset base that includes exposure to heavy oil, light crude oil and natural gas liquids, as well as natural gas and oil sands.
But the one thing that sets Canadian Natural apart from the rest and gives it a real competitive advantage is the low decline rate of its portfolio. As you know, all oil and gas resources have a natural “rate of decline,” or the rate at which production declines each year. Well, Canadian Natural’s decline rate on its assets is very low. This translates into long-lived assets (33 years) that require a minimal amount of capital investment.
This has made Canadian Natural a real cash cow.
Returning wealth to shareholders
It is management’s stated objective to return a large portion of the wealth it generates to shareholders. And they have remained true to this objective. In the second quarter, the company even returned $1.6 billion to shareholders in the form of dividends ($1.2 billion) and share buybacks ($400 million). Year-to-date, the company has returned $4.6 billion to shareholders.
Finally, this energy stock has paid dividends for 25 years in a row. During this period, the dividend has grown at a compound annual growth rate (CAGR) of 21%.
The bottom line
Given Canadian Natural Stock’s generous dividend yield of 5.3%, strong and consistent cash flow generation, and lucrative asset base, I view this energy stock as a clear winner in the sector. Investors would do well to own it as it will benefit if oil prices rise today. But I like it a lot because the company is showing resilience even in the more difficult oil price conditions.
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