The TSX continues to hit new highs, extending its stellar bounce off the April tariff rout. Investors who missed the rally are wondering which Canadian stocks might still be undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and total returns.
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Canadian National Railway
Canadian National Railway (TSX: CNR) trades near $129 at the time of writing. The stock is down 20% in the past 12 months and is way off the $180 it reached at one point in 2024.
Labour disputes at both CN and key ports in 2024 forced customers to find alternative ways to get their products to their destinations. This hit expected revenue growth and impacted operating efficiency. Wildfires in the summer of 2024 added to the pain. In the end, CN still managed to deliver a small revenue gain in 2024, but profits slipped compared to 2023.
Management initially expected 2025 to be a lot better, but tariffs and trade uncertainty have derailed the projections. CN originally anticipated 10% to 15% growth in adjusted diluted earnings per share (EPS) in 2025 compared to last year. In the second-quarter (Q2) 2025 earnings report, however, management had to lower the guidance, citing ongoing economic uncertainty.
Potential consolidation in the U.S. rail sector has added to investor concerns. Union Pacific and Norfolk Southern want to combine to create a seamless east-west rail giant. How this would impact CN is up for debate. Some customers could be lost, but reduced competition could also benefit the remaining rail carriers, who are now scrambling to form or expand partnerships. CN operates 20,000 route miles of track connecting the Atlantic and Pacific coasts of Canada with the Gulf Coast of the United States.
Near-term headwinds are expected, but the long-term outlook for CN should be positive. Trade deals between the United States and key partners will get sorted out, and businesses will adjust to tariffs. Economic growth will continue, and that means demand for CN’s services should rise.
CN remains a very profitable business and does a good job of sharing excess cash with investors through dividend growth and share buybacks. The board has increased the dividend annually for the past 29 years. Investors can currently get a 2.75% dividend yield.
Telus
Telus (TSX: T) trades below $22 at the time of writing compared to $34 in the spring of 2022. The slump has been painful for long-term holders of the stock who watched Telus dip as low as $19 late last year.
High interest rates caused the initial pullback in the share price. The Bank of Canada aggressively increased interest rates in 2022 and 2023 to fight soaring inflation. This drove up interest expenses on variable-rate loans and pushed up borrowing costs in the bond market. A jump in interest expenses cuts into profits and reduces cash available for debt reduction or payment of dividends, hurting companies like Telus that carry large debt positions. Price wars and weaker revenue at the Telus Digital (Telus International) subsidiary caused the extension of the stock’s downturn through the end of 2024.
Bargain hunters started to move back into Telus earlier this year, on the hopes that the worst of the pain is in the rearview mirror. Things could get better heading into 2026. The Bank of Canada just reduced its key interest rate, and more cuts are likely on the way. The price war for mobile and internet subscribers appears to be over. Telus is monetizing non-core assets to pay down debt and is taking Telus Digital private.
Investors who buy Telus at the current level can pick up a 7.6% dividend yield.
The bottom line
CN and Telus are strong companies that trade at discounted prices right now. If you have some cash to put to work in a buy-and-hold dividend portfolio, these stocks deserve to be on your radar.
