Better Buy in February 2024: RioCan REIT Stock vs. Canadian National Railway Stock

Here’s why both RioCan and Canadian National Railway are solid long-term investment choices in 2024.

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It’s always a good strategy to invest in quality dividend stocks. In addition to earning a passive stream of dividend income, long-term shareholders are also positioned to benefit from capital gains. Here, I compared two such dividend stocks in RioCan REIT (TSX:REI.UN) and Canadian National Railway (TSX:CNR) to see which is a better buy right now.

Is RioCan REIT stock a good buy right now?

One of the largest real estate investment trusts (REITs) in Canada, RioCan REIT offers you a tasty dividend yield of 6.1%. In the last four years, commercial REITs have been under pressure due to macro headwinds such as the COVID-19 pandemic and interest rate hikes.

In fact, RioCan was forced to lower its monthly dividends from $0.12 per share in December 2020 to $0.08 per share in 2021. Today, it pays investors a monthly dividend of $0.09 per share.

In the fourth quarter (Q4) of 2023, RioCan emphasized that its operational performance helped it increase occupancy rates by 50 basis points to 98.4%, while higher blended leasing spreads stood at 10.7%.

RioCan also delivered 600,000 square feet of development assets and a growing residential portfolio that should boost the net operating income in 2024. According to the REIT, it will continue to capitalize on the short supply of quality retail space in Canada.

RioCan ended 2023 with funds from operations of $1.77 per share, an increase of 3.5% year over year. Comparatively, it pays shareholders an annual dividend of $1.11 per share, indicating a payout ratio of 62.8%, which is sustainable, while providing the company with room to acquire new properties, lower balance sheet debt, and raise dividends further.

In 2024, RioCan expects to spend between $250 million and $300 million on new developments for mixed-use projects while allocating between $50 million and $60 million for construction of retail projects.

RioCan stock trades at a discount of 19.3% to consensus price target estimates.

Is CNR stock undervalued?

One of the largest companies in the country, the Canadian National Railway has returned 185% to shareholders in the last 10 years. After adjusting for dividends, total returns are closer to 240%.

Valued at a market cap of $114 billion, Canadian National Railway pays shareholders an annual dividend of $3.38 per share, translating to a yield of just 1.90%.

Canadian National Railway is engaged in the rail, intermodal, trucking, and marine transportation business in North America. Its vast railroad network provides CNR with a wide competitive moat, allowing it to report revenue of $16.83 billion in 2023, compared to $19.26 billion in 2022. Its sales fell in the last 12 months due to a decline in cargo, including crude oil.

Priced at 22 times forward earnings, CNR stock might seem expensive, but it is forecast to grow adjusted earnings by more than 11% annually in the next two years.

The Foolish takeaway

Both RioCan and Canadian National Railway seem attractive bets at current prices. Each of the TSX stocks pays shareholders a dividend, which should grow larger in the upcoming decade. It would make sense to add both of these stocks to your equity portfolio in 2024.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway. The Motley Fool has a disclosure policy.

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