3 Dividend Growth Stocks Worth Buying on a Pullback

CN Rail (TSX:CNR)(NYSE:CNI) and another top Canadian stock that investors should watch and look to buy if a pullback happens in 2022.

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Many pundits seem less than sanguine about the stock market’s potential for 2022. Indeed, it’ll be hard to stack up to what’s been a solid year for equities thus far. While we may or may not get a correction, investors should still consider buying the top dividend-growth stocks gradually over time. Today, the price of admission into many such quality names has gone up, with the TSX Index roaring towards new all-time highs.

While I’m not against loading up on such names near market highs, I do think they’re better to watch in case this hot market begins to cool off once again. Indeed, inflation is running hot, as is the relief rally heading into the holiday season. Whether Santa comes to town for stocks this year is a big question mark. Regardless, please consider the following dividend growth stocks that investors shouldn’t hesitate to pick up should they fall considerably over the coming quarters.

CN Rail

CN Rail (TSX:CNR)(NYSE:CNI) is chugging higher after a solid earnings report that propelled shares toward the $165 mark after a drama-filled year, with a bidding war with bitter peer CP Rail (TSX:CP)(NYSE:CP) and an activist investor pushing for a new top boss. With a major management shuffle likely going into the new year, there’s quite a bit of uncertainty surrounding the name that’s seen its operating ratio be negatively affected by the COVID pandemic.

In any case, there is room for improvement, and as CN Rail takes a step back to improve upon its strategic plan, I do think there’s considerable upside to be had. After the recent surge off the high-$120 levels, though, the name may be vulnerable to a near-term pullback. Should it dip, investors should look to be buyers of the wide-moat dividend grower. At 24.8 times earnings, the stock isn’t cheap, but it could prove a relative bargain if the firm can regain its title as North America’s most efficient railway.

CP Rail

CP Rail shareholders are ready to move on from the bidding war-fuelled carnage in the stock. Did CP overpay? Perhaps, but the potential synergies are quite unfathomable over the longer term. Indeed, there aren’t comparables, as CP is poised to become the first Mexico-U.S.-Canada cross-border railway. With that could come some synergies that analysts haven’t yet had the chance to digest. In any case, CP stock has corrected to the upside, bouncing over 17% off its 52-week low.

While the merger may weigh down the stock over the near term, it could take the number two Canadian rail player to the next level through what’s likely to be a roaring decade. At 20.8 times earnings, shares aren’t cheap, but they don’t deserve to be cheap given the width of the firm’s moat.

TFI International

TFI International (TSX:TFII)(NYSE:TFII) is a less than load trucking firm that’s had an incredible past year, surging over 125%. Year to date, the stock is up 117%, yet the valuation is still very modest with a trailing price-to-earnings (P/E) multiple of just 20.2.

As a mere $13 billion company, TFI is a large mid-cap that could have much more room to run. With incredible managers that righted their wrongs many years ago, the firm still seems too cheap to ignore, especially if you’re in the belief that the economy will continue strong over the next five years.

TFI is a lesser-known name that has incredible earnings growth supporting its rally. Could it have more room to run? Sure, but it’d be preferable to wait for a dip to around $115-120 before initiating a full position. The stock is hot, but it’s certainly not wildly expensive.

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 Joey Frenette owns shares of Canadian National Railway. The Motley Fool recommends Canadian National Railway.

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