This energy stock pays a growing dividend (currently a huge yield of 5.3%)

There are some pretty interesting value swings in the energy sector these days, especially with oil prices moving strongly in both directions. Although commodity price movements can be quite unpredictable in the short term, I think the top producers with competitive operations can be a solid choice even if the industry goes through a tough period. With lower breakeven production costs, such plays can do well in the downturn while being well positioned for the next inevitable upswing.

It’s undoubtedly better to get a fat, growing dividend while you wait for the tide to turn. And in this piece we take a look at a mature name within the energy sector that offers a nice yield of 5.3% for a very modest price-to-earnings ratio of 14.3 times. Enter shares of Canadian natural resources (TSX:CNQ), a leading energy company that recently reported some pretty strong third-quarter earnings results.

Canadian Natural’s third quarter was worth falling behind

Despite the good figures, the shares have not really managed to make any major gains, with shares even reacting slightly negatively immediately after the results. Arguably, there’s only so much a company can do when crude oil prices are in dire straits. Although costs rose, production also increased significantly, partly due to previous mergers and acquisitions and other efforts to optimize operational efficiency. Regardless, I think the company is well equipped from a long-term perspective as it continues to play the long game.

In the meantime, oil prices could go either way. But for Canadian Natural Resources, which has a pretty robust balance sheet, I’d say it’s well-positioned to thrive regardless of which direction oil moves. If things stay this way, Canadian Natural will be able to rake in some pretty significant cash flows as it continues to ramp up production. And if prices drop, the company has the opportunity to pursue even more acquisitions across the space, likely at a lower entry price.

As the energy sector comes under more pressure, the case for a deal becomes stronger given what a relative giant like Canadian Natural can bring to the table. For long-term dividend growth investors, I’d say the case for buying is stronger during times of massive weakness in the sector. Anyway, I think the good third quarter is underestimated by most investors. With shares down nearly 18% from 2024 highs, I think there’s a buying opportunity emerging for investors willing to be paid handsomely to wait.

The bottom line

I think there are a number of drivers in the new year that management is looking forward to as it raises the bar on production while keeping costs under control. And while Canadian Natural is already one of the cheapest producers in the Canadian energy space, I’d say there’s room to lower the bar even further. In any case, Canadian Natural is one of the most disciplined capital providers around. As production is scaled up with careful considerations for operational efficiency, I wouldn’t be surprised if CNQ stock can soar higher even in environments where oil production isn’t exactly booming.