CN vs CP Rail Stock: Better Dividend Grower for the Long Haul?

CN Rail and CP Rail stocks are looking too cheap to ignore after recent analyst upgrades.

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CP Rail (TSX:CP) and CN Rail (TSX:CNR) are popular Canadian stocks for Canadians seeking value in the blue-chip universe. Undoubtedly, the two big firms have a lot to offer to new investors seeking to put money to work over the next decade and beyond. Though the two plays trade hands quite a bit on any given session, I do view both firms as suitable to hold for the long haul.

Undoubtedly, it’s hard to implement the “buy and forget” strategy these days, especially with all the recession and rate risks. Still, Canadian investors should focus on the benefits of investing over extended time horizons. By trading in and out of stocks in search of a quick gain, you may not be able to get the most out of a firm’s dividend growth potential. Dividends need years to grow. And once they do, they can help supplement your overall income stream.

In this piece, we’ll have a closer look at two stocks that I view as top-tier dividend growers that could reward investors with a good mix of capital gains and dividend growth for the next decade and beyond.

CP Rail vs. CN Rail

CP Rail, or Canadian Pacific Kansas City, is a very interesting option for long-term investors seeking the best of both worlds (growth and dividends). The company has a lot to gain as it seeks to unlock value from its recent merger.

Though shares trade at a hefty premium multiple to the peer group. At nearly 28 times trailing price-to-earnings (P/E) at $111 and change per share, I do think the higher price tag is well worth paying up for given CP’s dominant position in North America.

No longer is CP Rail the much-smaller brother of CN. With a $104 billion market cap, CP Rail could be neck and neck with its long-time Canadian rival CN, which boasts a $107.1 billion market cap.

It’s hard to say who will win the Canadian rail race. Regardless, I don’t think it’s a bad idea to own both firms. Recently, CP Rail got slapped an upgrade from Argus Research from “neutral” to “buy.” Why the upgrade?

John Eade of Argus believes CP’s management team will make good on growing its bottom line and dividends. Further, Mr. Eade is a fan of the technical story.

Whenever you’ve got the fundamental growth story and technicals in alignment, you may have a timely bet on your hands. I think Eade’s right on the money. CP Rail stock is a great long-term addition, even at around new highs. As far as long-term investments go, I think it’s hard to go wrong with either CP or CN Rail stock.

For now, the dividend is a mere 0.68%. However, I expect generous dividend hikes over the course of the next five years.

CP vs. CN: The better buy right here?

The bidding war between CN and CP for Kansas City Southern may be over. However, the battle over which investment is a better play for Canadians will remain for quite some time.

I prefer CP’s long-term growth track. But CN’s lower price-to-earnings multiple (just north of 20 times) and its juicier 1.93% dividend yield lead me to believe CNR stock is the better value.

In any case, things are looking up for the railways. I’m certainly not against owning both right here. In fact, I think it’d be prudent to accumulate shares of either on dips moving forward.

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 has positions in Canadian National Railway. The Motley Fool recommends Canadian National Railway and Canadian Pacific Kansas City. The Motley Fool has a disclosure policy.

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