Contrarian investors are wondering which top TSX stocks might be undervalued right now and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and total returns.
Enbridge
Enbridge (TSX:ENB) trades near $58 per share at the time of writing, compared to $64 last week. The stock is still up 22% in the past year after getting a boost from cuts to interest rates in Canada and the United States.
Enbridge moves about a third of the oil produced in Canada and the United States and roughly 20% of the natural gas used by American homes and businesses. The steep slump in oil prices will impact oil producers as margins get squeezed, but Enbridge’s revenue isn’t directly impacted by the shifts in energy prices. As long as volumes remain high across the network, Enbridge should be fine.
Management made several strategic acquisitions in recent years to diversify the revenue stream. Enbridge added an oil export terminal, expanded its renewable energy portfolio, and purchased three natural gas utilities in the United States. The company is also a partner on the Woodfibre liquified natural gas (LNG) export facility being built in British Columbia.
Natural gas demand is expected to rise in the coming years as tech companies build gas-fired power generation facilities to provide electricity for artificial intelligence data centres.
Enbridge is working on a $26 billion capital program that should drive ongoing growth in distributable cash flow to support dividend hikes. The board raised the dividend in each of the past 30 years. Investors who buy ENB stock at the current level can get a dividend yield of about 6.5%.
Canadian National Railway
Canadian National Railway (TSX:CNR) is down 25% in the past year. Recent weakness is due to the broader market turbulence caused by tariff uncertainty. The pullback that occurred last year was largely the result of wildfires, bad weather, and labour disputes at ports that impacted volumes across the rail network.
A recession in the United States and Canada caused by a trade war would be negative for CN. However, the long-term outlook for the railway should be positive. CN’s network runs from the Atlantic to the Pacific in Canada and down through the United States to the Gulf Coast. It is vital to the smooth operation of the economies of the two countries. The trade issues will eventually be sorted out, and resumed economic growth will drive higher volumes across CN’s network.
CN has a great track record of returning cash to shareholders through dividends and share buybacks since going public in the mid-1990s. The stock trades near $132 at the time of writing compared to $180 around this time last year, so there is decent upside potential on a rebound. Investors can get a 2.7% dividend yield while they wait for the recovery. Buying CN on material pullbacks has historically proven to be a savvy move for patient investors.
The bottom line on top TSX stocks
Near-term volatility should be expected, and more downside is certainly possible for these stocks. However, contrarian investors who can handle the turbulence should put Enbridge and CN on their radars at these levels.
