The rail stocks have been chugging lower in recent months, thanks in part to temporary setbacks (think work stoppages, strikes, etc.). With high barriers to entry into the rail business and the steady, predictable dividend (and earnings) growth trajectories, Canada’s top rail stocks seem poised to get back on their feet after suffering a few stumbles of late.
Indeed, the Canadian and U.S. economies need rails to transport massive amounts of goods in order to stay well-oiled. While the odd rail strike, derailment, or even environmental factors like forest fires could take a great deal away from a quarter, I’d argue that it’s the long-term game that counts when it comes to the top rails.
At the end of the day, trucks cannot step in for the top rails when bulk shipments need to go from one coast to another. Either way, let’s have a closer look at Canada’s top two rail stocks to see which, if either, is a tempting buy on recent weakness for 2025 and beyond.
It’s been a forgettable year for both railways, but as Canada’s economy and the TSX Index attempt to heat up in the new year, perhaps value investors may wish to give the following names a second look while they’re still down and out.
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CN Rail
CN Rail (TSX: CNR) stock is ready to end off what’s been a relatively muted year. Indeed, some headwinds hurt the quarterly results a bit. While you can’t fault management for any setbacks, I think some big changes will be needed if the still-robust railway is to reclaim its title of North America’s most efficient railway.
Though CN Rail isn’t operating poorly, given the unfortunate circumstances (think numerous disruptions), I do believe there is low-hanging fruit to go after to improve upon the rail’s efficiency metrics. Either way, I do see ample value in the name today as the stock continues trending lower. Whether the current management team can effectively unlock such value, however, remains the big question going into 2025. Year to date, the stock is down around 7%.
With a padded 2.22% dividend yield that’s scheduled to grow every single year, I’d not be afraid to chase the dividend growth stock on the way down. At $155 per share, I think you’re getting a fantastic deal as the railway looks to move past work stoppages and other disruptions that took away from what could have been an up year for the stock.
CP Rail (or CPKC)
CP Rail (TSX: CP) has been known as CPKS (Canadian Pacific Kansas City) for a while now. Whatever you still call the firm, it’s a dominant rail player that has what it takes to go full speed ahead over the longer term. Going into 2025, though, I’d temper my expectations on the rail firm despite its resilience amid industry headwinds.
Though there are potential growth drivers to be had around the Mexican border, I can’t say I’m enthused to pay a 28.3 times trailing price-to-earnings (P/E) multiple for CP shares when CNR is going for just 18.4 times trailing P/E. Sure, there’s more growth in CP, but I think you’re paying way too high a premium to get such growth.
As such, I view CNR stock as the far better value option in 2025. There’s also a nicer dividend (2.22% yield vs. CP’s 0.72%) to collect while you wait patiently for the rails to hit the high track again.
