Just because the “Trump trade” is picking up traction in the U.S. doesn’t mean that there are a lack of cheap dividend-growth opportunities to be had by new Canadian investors.
Undoubtedly, even a limited sum — let’s say $1,000 for a beginner investor — can be enough to move the needle higher over the course of many decades. In this piece, we’ll look at a handful of smart dividend growth stocks that may be worth considering while they’re still relatively cheap. Undoubtedly, not every TSX stock has gained post-election. And it’s these names that may be in a better spot heading into the new year, with a lower expectations bar and pretty depressed multiples.
Of course, the greatest wealth-creating effects of the top dividend-growth stocks are felt over the extremely long term (think more than 10 years). So, if you’re a young market newcomer, consider the following two Canadian stocks instead of waiting for a market correction that may not come as soon as you’d like.
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CN Rail
CN Rail (TSX: CNR) is a terrific first stock for any new investor looking to put their first $1,000 or so to work. Undoubtedly, I’ve praised the impressive Canadian railway in the past, despite navigating a rough couple of recent quarters. Though time will tell when CN Rail stock can make up for lost time, I must say I’m a fan of the multiple for those willing to hang onto shares for the next decade.
Indeed, CN Rail may not be the largest Canadian rail firm by market cap anymore, with a market cap of $98.1 billion (which puts it slightly below its top rail rival), but I think it has the most room to gain ground as management focuses more on efficiency efforts. Indeed, 2024 was a rather mixed year filled with headwinds, strikes, and other hiccups.
That’s a major reason why CNR shares are down close to 7% year to date. Regardless, CN has a ridiculously wide moat, a powerful dividend (2.17% yield today), and an even more powerful dividend-growth trajectory that, I believe, could be more impressive if Canada’s economy heats up in 2025. Sure, CNR stock looks untimely after its correction, but if you’re looking for a prudent place to stash $1,000, I’d argue few blue chips are as enticing as the name, especially at less than 19 times trailing price to earnings (P/E).
Royal Bank of Canada
Another steady dividend grower that could pick up the pace over the next 10 years is Royal Bank of Canada (TSX: RY). It’s Canada’s largest bank, and it may also be its best. The stock has managed to rocket to new highs this year as some of its rivals have been dragged down by the mixed industry climate.
As interest rates fall, the big banks may see a bit of pressure of their margins. That said, with a track record of overcoming worse headwinds, I’d argue Royal shareholders have little, if anything, to worry about. Arguably, Royal Bank has one of the best management teams in the game. And though the dividend (3.29% yield) is comparatively small, I am a fan of the dividend-growth trajectory as well as the potential for capital gains.
At the end of the day, young investors should insist on total returns (gains potential plus dividends) rather than scooping up the fattest yield possible. While RY stock isn’t the cheapest at 15.3 times trailing P/E, I’d argue the slight premium is worth paying given the premium nature of the $244 billion financial behemoth.
