Beginner TFSA investors should stick with the stocks of firms with easy-to-understand business models. For a newbie, the simpler, the better, at least in my books. Indeed, with steadier, more predictable earnings (and dividend) growth trajectories, it’s easier to evaluate a company and forecast its cash flows for future years.
Of course, the odd economic downturn could upend projects. That’s why it’s vital to have a wider margin of safety baked into a share price before hitting that buy button for the very first time. In this piece, we’ll concentrate on two simple dividend growers that are shaping up to be solid bets for the start of July.
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Alimentation Couche-Tard
Alimentation Couche-Tard (TSX:ATD) stock has been much-hated for over a year now. With the stock plunging to new 52-week lows, I think there’s an opportunity for contrarians to step in at around $68 and change.
At these depths, shares go for 18.1 times trailing price to earnings (P/E), a multiple I find to be way too low for one of Canada’s best long-term growth stories. Indeed, we’re all getting a bit tired of the company’s year-long pursuit of 7 & i Holdings (the Japanese firm behind 7-Eleven). And with some analysts pinning the odds of a successful takeover at less than 50%, I think that some clarity with a deal (or lack thereof) could actually spark a nice relief rally in shares, perhaps all the way back to $80. A lack of a 7-Eleven deal could mean it’s time for the firm to make up for lost time by scooping up smaller deals across the board and perhaps a few mid-sized acquisitions.
Indeed, it’s the magnitude of uncertainty surrounding the blockbuster deal that’s making an otherwise predictable growth play an easy sell for some investors. After clocking in a relatively decent, though not amazing, fourth quarter of earnings, I think there’s an opportunity to load up this summer for those who want to trade the conclusion of the great 7-Eleven pursuit. Personally, I think the odds of a deal going through are around 40%, given recent divestments and management’s encouraging commentary.
CN Rail
CN Rail (TSX:CNR) is a well-known dividend grower that’s been stuck in a bear market for a while now. With a yield of 2.5%, it’s also quite a generous source of income in the present. And while industry headwinds will likely prevail amid pressures facing Canada’s stalling economy, I continue to find CN as one industrial juggernaut that will be there once the next big expansion takes hold, perhaps once tariffs are gone.
With President Trump ending discussions with Canada over the digital services tax (DST), tariffs may very well be sticking around for a longer duration. Either way, CN’s solid dividend and newly announced infrastructure investments in the Maritimes are positives that investors can get behind. The big question going into the second half is whether or not CN Rail can finally jolt its operating ratio.
Indeed, supply chain shocks and endless roadbumps have caused the operating ratio (lower is better) to fall off the tracks a bit. But with a recovery well underway, I certainly wouldn’t stand in the way of the freight train titan as it rolls into its coming quarters, which, I think, are relatively modest on the front of expectations. My take? It’s time to buy the fallen dividend-growth gem before it comes roaring back.
