Hey there. We're big fans of Canadian Natural. This is exactly why it's on our Canadian Foundational Stock List. I'm going to drop our thoughts on Canadian Natural below.
It is one of the lowest cost producers on the Index and navigated record low oil & gas prices with ease during the covid-crash. While many other senior producers were cutting the dividend, Canadian Natural didn't miss a beat.
Currently, Canadian Natural yields a healthy mid-4% and owns a 22-year dividend growth streak. Over the past five years, the company has averaged ~16% dividend growth, and its current payout ratio is only 38.86%. That drops to 26.6% when compared to free cash flow. What does that mean? It has plenty of room to grow the dividend even if commodity prices fall materially.
Canadian Natural is the second-largest natural gas and largest crude producer in Canada. It has a 30-yr proved reserved life index. In comparison, its peers' average Proved Reserve Life index is around 19 years. It is the only Canadian company with more than 5 billion MMBOE reserves.
Outside of being one of the largest and longest-life reserves, what is particularly attractive about Canadian Natural is that it is a low-cost producer. It has low maintenance capital and can strategically increase or decrease planned M&A depending on the environment.
The company recently updated its adjusted Free Cash Flow allocation policy. For CNQ's purpose, adjusted FCF is FCF less base CAPEX and dividends. So yes, this is post-dividend payments. When net debt reaches $8B, it intends to allocate 80-100% of FCF as incremental returns to shareholders via buybacks. The current policy is 50% towards debt repayment and acquisitions & 50% towards buybacks.
In Fiscal 2022 (not yet finished), it expects to have generated ~$18 per share in FCF, which is incredible. Of that, $4.33 went to dividends (which included a one-time special dividend), and $5.00 per share went to share repurchases. The level of cash flow that CNQ generates is second to none, thanks to its status as a low-cost producer.
For this reason, it is one of the best positioned to also navigate any economic downturn. When you combine the company's size, long-life reserves, low-cost profile, strong cash flow generation and ability to pivot depending on the macro environment, there is no producer we'd feel more comfortable attaching to our Foundational list.