Better Stock: CNR or CP

CN Rail (TSX:CNR) stock is an intriguing dividend growth juggernaut that long-term TFSA investors should consider this April 2024.

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The broader railway industry has been steadily chugging higher in recent weeks, thanks in part to subtly improving numbers across the board and hopes that the economy may be able to escape that so-called “hand landing” after all.

Indeed, with broader markets experiencing a good amount of momentum going into the second quarter of the year, it certainly seems like it’s time to get back into the low-cost stocks with a good amount of newfound momentum behind them. The Canadian rail stocks stand out as some of the best plays for dividend growth investors (especially those using their TFSA portfolios) looking to gain a leg up over the next couple of years as they move past the rather sluggish past few years of economic headwinds.

Both top Canadian railway stocks are fresh off hitting new all-time highs after a rather lengthy period of share price consolidation (going sideways for many quarters at a time). With shares of both rail plays starting to pick up momentum, questions linger about how much room the current rally has to go.

Arguably, lower rates and the easing of macroeconomic pressures may just be enough to pave the way for further gains over the year ahead. But which Canadian rail play is the better bet for April? Let’s find out as we kick off the April 2024 edition of Battle of the Canadian Railroad Stocks!

The case for CNR stock

CN Rail (TSX:CNR) has to be the value investors’ preferred pick of choice at this juncture. It has a lower trailing price-to-earnings (P/E) multiple than CP right now, at just 20.7 times. Additionally, CNR stock also sports a richer dividend yield at 1.89% alongside a rather lengthy dividend growth track record. With shares flirting with the $180 level, I also see more upside if this is the breakout that CN shareholders have been waiting for.

Either way, it will be very interesting to see how the firm intends to maintain its slight market cap edge over the likes of CP Rail (TSX:CP) after losing the right to acquire Kansas City Southern’s assets a while back.

The case for CP stock

CP Rail (or CPKC as it’s now known post-merger) stock may be more appealing to young investors who value momentum and growth over lower multiples. Indeed, the big Kansas City Southern merger helps give the growth profile a nice, much-needed boost.

Though there’s a greater level of growth priced in, with the fairly expensive 28.5 times trailing P/E multiples, well above that of CNR stock, I’m inclined to believe the premier price tag is worthwhile, given the capabilities of its CEO Keith Creel, one of my favourite rail industry top bosses.

Though I’d rather be a buyer on a pullback towards $110–112, I’m not against initiating a starter position right here at $120.

The better buy: CN Rail or CP Rail?

I think CNR stock has a slight edge here. It’s the cheaper rail with the larger dividend, and I also think growth expectations are far too muted. All considered CNR stock looks like it could have more upside over the next three to five years, in my opinion.

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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