It can literally pay handsome dividends to stick with the proven dividend-growth juggernauts, even during their times of momentary pain. Indeed, there are more than just a few dividend growers that have been under a bit of pressure in recent years. While it’s discouraging to have less return to show after the market’s impressive multi-year march, I still think that long-term investors should be inclined to buy more shares after such bouts of relative underperformance.
In the grander scheme of things, such relative slumps could prove great opportunities to get more bang (and upfront dividend yield) for your buck. Of course, it’s never easy to bet on a stock that’s lost its lustre. However, if you want better value, such names are often worth jumping into, provided there’s a turnaround plan and a realistic means to return to their prior peaks. It may take another year or two, but I do think the odds favour the following names as it is ready for another round with a potential second wind at their back.
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TD Bank
TD Bank (TSX:TD) has been one of the least-loved and hardest-hit Canadian bank stocks of late. Indeed, 2024 was a rough year for the bank as it took further action to improve upon its anti-money-laundering efforts. Indeed, when all is said and done, TD may be in the best shape of its peers to fight off fraud.
Despite the efforts and new managers, TD Bank still has to roll up its sleeves as it explores its new, more “organic” path forward. Though the U.S. market would have been a great place to double down, asset caps and other regulatory roadblocks may put the biggest and best of U.S. growth plans on a sort of pause for some time. In the meantime, however, there are other areas where TD can hit the growth button.
In prior pieces, I’ve highlighted artificial intelligence (AI) and tech as worthy places for TD to invest its extra cash. New chief executive officer Raymond Chun is serious about organic growth. Going into 2025, TD will have enough liquidity to tackle new tech frontiers while also having plenty to repurchase a ton of shares. Personally, I think buybacks and organic investment are the right way to go as TD pulls off a comeback that investors should be banking on.
At this time of multi-year undervaluation, one has to think that such buybacks will prove well-timed, especially as TD enters what I believe could be a “turning point” year. The 5.12% dividend yield remains incredibly attractive as the bank looks to outperform again. Year to date, TD stock has been off to the races, now up close to 12% in just shy of a month and a half. That’s a hot start and one that could carry into year’s end.
CN Rail
CN Rail (TSX:CNR) seems to be in hibernation mode, making it a prime pick-up for Tax-Free Savings Account or Registered Retirement Savings Plan investors looking for a deeper value proposition. The stock trades at 20.91 times trailing price-to-earnings to go with a 2.4% dividend yield. As one of Canada’s most impressive dividend growth icons, I think anything that hits CNR shares, including tariff fears, ought to be treated as a transitory headwind for a firm that was built to fare well over the decades.
Though there may not be a whole lot of catalysts, I think management is setting CN to win at the long-term game — the only game that matters for long-term investors. With a 0.65 beta, the stock may be a smoother ride moving forward should the TSX Index be overdue for a Trump tariff-driven correction at some point this year.
