The rally in Canadian stocks has wiped out many of the bargains that existed earlier this year, but investors can still pick up a few attractive dividend names for very reasonable prices. Let’s take a look at why Canadian National Railway Company (TSX:CNR)(NYSE:CNI) and Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR) are appealing right now. CN CN and its peers are facing some economic headwinds, and that has led to a rotation out of the rail sector. Normally, this proves to be an opportune time to pick up the stock. Why? CN is literally the backbone of the Canadian and U.S. economies. The…
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The rally in Canadian stocks has wiped out many of the bargains that existed earlier this year, but investors can still pick up a few attractive dividend names for very reasonable prices.
CN and its peers are facing some economic headwinds, and that has led to a rotation out of the rail sector.
Normally, this proves to be an opportune time to pick up the stock.
CN is literally the backbone of the Canadian and U.S. economies. The company operates a rail network that runs coast to coast in Canada and cuts straight through the heart of the U.S. right to the Gulf of Mexico.
Revenue is down in the energy and coal segments, but other customer groups, including automotive and forestry, are picking up the slack. It’s this diversified revenue stream, along with strong exposure to the U.S. dollar, that makes CN such an attractive pick.
The company is widely viewed as the best-run business in the industry, and management continues to find ways to lower the operating ratio. This translates into healthy earnings despite slight drop in overall revenue.
In fact, CN posted Q1 2016 net income of $792 million, up 13% compared with last year amid a 4% slide in sales.
Dividend investors often skip CN because the yield is only 2%, but that is a narrow-sighted view. The company raised the payout by 20% this year and has hiked the distribution by an average 17% per year for the past two decades.
If you want a stock you can simply buy and tuck away in your TFSA for 20 or 30 years, CN is about as good as it gets.
Investors are looking at Shaw’s latest strategy shift and scratching their heads. They are also avoiding the stock.
What’s going on?
After years of refusing to get sucked into the mobile game, Shaw recently pulled a 180 and bought Wind Mobile. The deal is a surprise because Shaw sold off valuable mobile spectrum last year that could have been used to help build out a national network.
To pay for the Wind Mobile purchase Shaw sold its media business to Corus Entertainment. The disposition means Shaw no longer owns its TV network, popular specialty channels, or its portfolio of radio stations.
Some analysts say the company is completely lost. I think the moves will prove to be beneficial for investors once the transition process is complete.
In the meantime, dividend fans can pick up a safe 4.8% yield and wait for the market to push the valuation back up to the level where Shaw’s peers currently trade.
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Fool contributor Andrew Walker has no position in any stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.