The Motley Fool

4 Top TSX Stocks to Buy for Long-Term Dividends

Image source: Getty Images

One good reason to manage one’s own personal investment portfolio is that investors get to mix and match outperforming stocks. This is particularly important at a time when whole sectors can underperform the market. Instead of allowing this or that index to drag down a portfolio, investors can pick out star performers. Today, we will look at two high-performance names that have been overshadowed by competitors of late.

Switching tracks with rail stocks?

Canadian Pacific Railway (TSX:CP)(NYSE:CP) often gets overlooked in favour of its better known competitor, CN Rail (TSX:CNR)(NYSE:CNI). But there are at least two good reasons why CP Rail could be a better buy in the long run.

CN Rail’s 1.6% dividend yield is small but well covered with a low 47% payout ratio. This is a low-volatility play, as shown by a 36-month beta of 0.57. That’s considerably lower than market weight. However, value-wise, CN Rail’s prices is an unwieldy five times its book value.

CP Rail’s P/B ratio of 7.6 times book is even more top heavy than CN Rail’s. But the momentum is stronger with CP Rail, up 31.5% in 12 months to CN Rail’s 16.8%. Despite the other facets of its data that fall short of CN Rail’s, CP Rail could be a better pick for near-term upside.

However, there’s one other positive factor to consider. CP Rail pays an even lower dividend yield than CN Rail of just 0.9%. But its payout ratio shows better coverage, at just 20%. And that could spell a win for long-term dividend-growth potential.

Another market share battle is heating up…

BCE (TSX:BCE)(NYSE:BCE) is one of three top telecoms names that dominate the Canadian market between them. That market share is pretty evenly split — at the moment. But it’s clear that major competitor Rogers (TSX:RCI.B)(NYSE:RCI) could be getting into position to take the reins going forwards.

BCE’s dividend yield of 5.8% is suitably rich. However, its payout ratio of 130% denotes a rather stretched coverage. Investors may be concerned about the outlook of 5G — in particular how fiercely competitive this space could be. This might not combine so well with certain other weak points in BCE’s data, such as a 1.2 debt-to-equity ratio. However, BCE has on thing going for it that may be getting overlooked.

That element is focus. While BCE has lost revenue from a general drying up of advertising in 2020, it has fewer balls in the air than, say, Rogers. To take Rogers as an example, there’s the sidelining of sports teams, and the attendant slowdown in sports media to worry about. While these will no doubt factor into a hopeful recovery rally, such a phenomenon could be some time coming.

Both stocks are much of a muchness when it comes to value. For instance, both Rogers and BCE trade with a P/B ratio of three times book. But if balance sheets keep you up at night, it may be worth noting that Rogers’s debt to equity is double. There’s it’s lower yield to factor in, too, at 3.3%. While BCE has other irons in the fire — consider its strong digital media presence — it’s arguably a more focused business.

Still looking for top TSX stocks? Read the following report before it's gone...

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway and ROGERS COMMUNICATIONS INC. CL B NV.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.