With the TSX at a new record high, investors are wondering which top Canadian stocks might still be attractive to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and long-term total returns.
Canadian National Railway
Canadian National Railway (TSX:CNR) trades near $137 per share at the time of writing. The stock was as high as $180 at one point in early 2024 before going into an extended slide that saw the share price dip as low as $130 in recent months.
Investors sold the stock last year as CN battled through a number of challenges. The company faced several operational disruptions due to labour disputes and wildfires. Strikes and both CN and key ports forced customers to find alternative options for delivering their goods to customers. Wildfires in Alberta caused additional delays along the rail network. CN still managed to eke out a small revenue gain in 2024 compared to 2023, but earnings slipped due to the jump in expenses caused by all the interruptions.
Trade negotiations between the United States and Canada are keeping potential CN investors on the sidelines in 2025. The recent threat by the U.S. to impose 35% tariffs on Canadian products would likely drive the Canadian economy into a recession. Tariffs imposed by the U.S. on all of its other trading partners, including China, could also push the United States and the broader global economy into a prolonged slump. If that scenario materializes, CN would see reduced demand for its services.
Upside?
The contrarian case for buying CN at the current price is the expectation that the U.S. and Canada will reach a reasonable trade agreement in the coming months. Certainty on tariff levels will enable businesses to place orders that are currently being delayed. Agreements between the United States and China, among others, would help stabilize the global trade picture and shipments of commodities and finished goods should return to predictable flows. Once the trade deals are settled, CN’s share price could catch a nice tailwind.
CN’s management team provided optimistic guidance earlier this year. The company expects to deliver a 10% to 15% increase in adjusted diluted earnings per share (EPS) compared to 2024. The board felt comfortable enough with the outlook to raise the dividend by 5% for 2025. This is the 29th consecutive annual dividend increase. CN is also planning to buy back up to 20 million shares under the current stock-repurchase program.
Investors who buy CNR at the current level can pick up a 2.6% dividend yield, so you get a return that is above the current rate of inflation while you wait for a rebound in the share price.
Time to buy CNR stock?
Near-term volatility should be expected, and it is possible the stock could retest the 12-month low in the coming weeks. However, a quick look at the long-term history of CN’s share price suggests that buying CNR stock on material pullbacks should prove to be a savvy move for patient investors. If you have a contrarian investing style and can ride out additional turbulence, this stock deserves to be on your radar.
