Truly undervalued Canadian dividend rock stars are few and far between. With the markets off to a jittery start to the second half, I’d argue that now is as good a time as any to put any excess dry powder to work before inflation can take another bite out of your purchasing power. Now, there may not be Dividend Kings worth doubling down on at this juncture, but there are intriguing Dividend Aristocrats that seem too cheap for their own good, even if we are destined for an economic slowdown.
The cheap Dividend Aristocrats are the true rock stars. And in this piece, we’ll have a closer look at two of the names that I believe can’t be ignored at this critical market crossroads. While shares do look to have some margin of safety at current valuations, they could continue to fall at the hands of the broader market selloff. That’s why it’s wise to buy gradually on the way down and never seek to exhaust one’s liquidity at one moment in time.
Without further ado, let’s have a look at CN Rail (TSX: CNR)(NYSE: CNI) and Fortis (TSX: FTS)(NYSE: FTS).
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CN Rail
CN Rail seldom stays down and out for a prolonged period. Even if the economic slump is slated to be a long slog, CNR stock is one of the most intriguing wide-moat bets that anyone could ask for. CN Rail has a track record for operational excellence, but in recent years, the reputation has been tarnished, as COVID headwinds and other drawbacks have weighed heavily on the firm’s operating ratio.
From strikes to commodity price fluctuations and trade disputes, CN has been a rocky road. Looking ahead, there’s a recession or economic slowdown that could weigh on the firm. With a new ambitious CEO that’s looking to get CN back on track (pardon the pun) with its operational efficiencies, I’d argue that CN is more than worth picking up after a plunge into correction territory.
Sure, the new CEO Tracy Robinson may not be the most seasoned railroader. However, her energy transportation expertise at pipeline firms could come to pay dividends. In any case, CNR stock seems like a bargain right here, as it looks to invest in its business to overcome hard times.
Fortis
Fortis is another stock that many defensive dividend seekers have piled into over the past year. At $60 and change per share, Fortis trades at over 23 times trailing earnings, with a 3.3% dividend yield. Historically speaking, Fortis stock is not cheap. It’s fairly valued at best at under 7% from its all-time highs.
Moving ahead, Fortis will continue moving forward, while rewarding shareholders with solid dividend growth. Though regulatory headwinds in the U.S., like those pointed out by UBS, could weigh heavily on growth, I view Fortis as a far cheaper bet relative to bonds.
Undoubtedly, Fortis may not be the cheapest defensive stock on the planet. But compared to other bond proxies, FTS seems to be more than worth a second look on its latest dip.
