Canadian National Railway (TSX:CNR) and Canadian Natural Resources (TSX:CNQ) sat out the big rally in the TSX over the past year. Contrarian dividend investors are wondering if CNR and CNQ are now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and long-term total returns.
Canadian National Railway
CNR trades near $136 per share at the time of writing, compared to $160 a year ago. The stock was as high as $180 at one point in 2024.
The slide in the share price over the past 18 months is due to a number of factors. In 2024, labour strikes at CN and key ports disrupted operations and forced customers to find alternative transport options to move their cargo. In addition, CN faced interruptions caused by wildfires in Alberta. The resulting loss of business led to weaker-than-expected financial results in 2024, with revenue rising only slightly from the previous year and adjusted earnings falling as a result of the increase in expenses.
2025 has been a story of tariffs. Management initially expected the business to deliver 10% to 15% growth in adjusted diluted earnings per share, but reduced guidance when the second-quarter (Q2) earnings results came out in July, citing uncertain economic conditions. Adjusted diluted EPS growth is now expected to be below 10% this year. The Q3 2025 results, due out around the end of October, will give investors a good idea of whether or not the outlook has improved.
A proposed merger between two American railways, Union Pacific and Norfolk Southern, is adding extra volatility to the rail sector as analysts try to determine how the combination would impact the other players.
Near-term uncertainty is expected to continue until the United States sorts out its trade negotiations with China, Canada, and Mexico. Agreements will eventually get done, however, and clarity on tariffs should provide a boost of confidence for businesses that use CN’s services.
CN has raised the dividend in each of the past 29 years. The railway remains very profitable, and investors can pick up a decent 2.6% dividend yield at the current price while they wait for a rebound. Buying CNR on big pullbacks has historically proven to be a savvy move over the long run.
Canadian Natural Resources
Canadian Natural Resources is an energy giant in Canada with extensive oil and natural gas production and reserves. Weak energy prices have put pressure on the share price over the past year, giving investors a chance to buy CNQ at a discounted level. The stock currently trades near $43 per share. It was close to $50 a year ago and was as high as $55 in the spring of 2024.
Energy analysts broadly expect the global oil market to be in a surplus position through 2026. This will be a headwind for oil prices. West Texas Intermediate (WTI) trades near US$58 per barrel at the time of writing. It was above US$80 last year.
Despite the challenging market conditions, CNRL continues to generate strong profits. The company says its WTI breakeven is in the US$40 to US$45 per barrel range. Production growth from acquisitions and successful drilling programs helps offset the lower margins.
Looking ahead, Canada is considering building new pipeline capacity to enable producers to sell more oil to international buyers. Any extra access to global markets would benefit CNRL. The company is also a major natural gas producer. New liquefied natural gas export facilities in British Columbia will help CNRL expand its customer base and should support production growth.
CNRL raised the dividend in each of the past 25 years. Investors who buy CNQ at the current share price can get a dividend yield of 5.4%.
The bottom line
CN and CNRL pay good dividends that should continue to grow. If you have some cash to put to work in a contrarian portfolio, these stocks deserve to be on your radar.
