Dividend-growth stocks may very well be even more rewarding than today’s dividend plays with ultra-high upfront yields. Undoubtedly, higher interest rates have paved the way for higher yields on your average dividend payer. And as the Bank of Canada begins cutting back on interest rates (perhaps at some point this year), I wouldn’t be surprised if the ailing high-yield dividend stocks finally catch a break.
Though I’m not against nibbling at the blue chips yielding at or more than 5% (or even the select few that boast yields over 8%), I think that young investors, many of whom may not need the passive-income payments today, may be in a spot to strike a better balance between long-term capital appreciation, dividends, and dividend growth.
Undoubtedly, dividend growth stocks may not deliver TSX-crushing gains over the near term. That said, over the course of decades, the top-tier Canadian dividend growth stocks can allow investors to score a sizeable payout down the road alongside steady appreciation as a result of earnings growth over time.
In this piece, we’ll look at two TSX dividend growers I consider to be a pretty good deal as we look to exit the month of April.
CN Rail
CN Rail (TSX: CNR) stock is my personal top pick for the best dividend grower in Canada. The current yield is also pretty enticing, just over the 2% level at the time of writing. With the stock recently hitting fresh all-time highs before pulling back mildly to $170 and change, CNR stock finally seems like a timelier play with the newfound (over the past six months) momentum behind it.
The company’s latest quarter was pretty decent, but margins were nothing to write home about, in my opinion. Consolidated volumes were also quite flat on a year-over-year basis. In any case, management seems to think it’s full steam ahead for the firm as it stands by its forward-looking guidance. In light of the decent (but not incredible) quarter, I’m inclined to view CNR stock as a bargain buy for long-term investors.
Sure, CN Rail isn’t firing on all cylinders yet. But it’s on track (forgive the pun) to power some pretty reasonable (dividend) growth over the years. At 19.72 times trailing price to earnings (P/E), you’re paying a fair price for an exceptional dividend growth superstar. Further, the low (0.65) beta, which entails less correlation to the rest of the market, could come in handy when the TSX Index starts getting choppy again.
TFI International
TFI International (TSX: TFII) is another transportation juggernaut that’s starting to apply more weight to the accelerator. Shares have plunged into a 12.5% correction over the past month after spending a bit of time hovering around all-time highs near $220 per share.
I view the dip as more than buyable for investors who believe better days are ahead for the North American economy. Indeed, the truckers keep goods moving on schedule, which is of growing importance as the Canadian and U.S. economies look to get back up on the growth track. With a decent 1.14% dividend yield and a mild 24.2 times trailing P/E multiple, investors may wish to stash the $16.2 billion transportation play on their watchlists for May.
