The TSX Index might be getting a bit on the overbought side, but that doesn’t mean there isn’t value to be had, especially when it comes to the dividend giants that can continue to thrive as rates fall. In this piece, we’ll check in on a solid pair of dividend growth stocks that I think are still being unfairly neglected by Mr. Market. Indeed, it’s exciting to chase some of the bigger movers on the TSX. However, I’d much rather look to these lesser-appreciated names for those looking for sustained gains, even once the rest of the market is ready to have a breather after one of the strongest first three quarters for the Canadian stock market in a long time.
The key to continued performance, I believe, lies in picking up the relative bargains plays that investors may be a bit surprised to discover are less-heated, even cold, relative to the rest of the market.
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CN Rail
Let’s start with CN Rail (TSX: CNR), a stock that’s close to multi-year depths despite the incredible performance of the broad market. The stock has gotten more than just cheap at 17.5 times trailing price to earnings (P/E). Arguably, the name is absurdly cheap when you consider its ability to overcome transitory headwinds facing the rail scene and, of course, the potential for a few rail mergers as we roll into the new year.
Indeed, it’s a bad time to be a rail investor, but if you’ve got a 10-year horizon, I think buying the stock after a nearly 29% drop (yes, you heard that right. CNR shares are down 29% from its peak while the rest of the TSX has been firing on all cylinders) could prove a very interesting contrarian move that could pay off in a big way.
The near- to medium-term outlook remains cloudy for CN, and while there was not much to be constructive about following that last rough quarter, I do think that those seeking deep value and a fast-growing dividend (2.76% yield) might wish to punch a ticket at $127 and change. All aboard!
Quebecor
If bottom-fishing for stocks in bear market territory seems too risky for you in today’s roaring bull market, perhaps a name like Quebecor (TSX: QBR.B) is a better bet. The tides are working in the telecom’s favour, even as the broader industry encountered challenges. With superb management and a golden opportunity to expand nationally, I’m a fan of the growth narrative and the company’s ability to execute.
In a previous piece, I highlighted that Quebecor’s wireless business, Freedom Mobile, was gaining significant subscriber momentum and was likely to keep its most established Canadian rivals on the ropes.
With shares retreating just over 3% from all-time highs, I’d continue to look to build a position as the stock takes some time to digest its recent gains. Shares are still undervalued at 10.8 times forward P/E, and I believe the best is yet to come as Freedom expands its service and low-cost promotions.
Of course, the 3.3% yield isn’t all too enticing when you’ve got a rival with a yield north of 7%. However, if you want a powerful long-term growth thesis, I believe the relatively modest dividend is worth settling for, especially if you’re not an income-oriented investor.
