The TSX is trading near a record high, but investors can still find top Canadian dividend stocks that are trading at reasonable prices to add to a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
In the current market conditions, it makes sense to look for out-of-favour stocks that have long track records of delivering steady dividend growth.
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Canadian National Railway
Canadian National Railway (TSX:CNR) trades near $133 per share at the time of writing. The stock was as high as $180 in March 2024, but has been on a downward trend for much of the past 18 months, recently sliding below $130.
Bargain hunters are wondering if CN stock is now oversold. The company’s 2024 troubles revolved around labour strikes at CN and key ports the company serves. Wildfires in Alberta caused additional delays and disruptions last year. As a result, CN’s full-year 2024 results came in weaker than anticipated. Revenue inched slightly higher compared to 2023, but profits slipped due to elevated expenses.
Management initially projected a much better outlook for 2025, even as the trade uncertainty began to emerge. In the first-quarter (Q1) earnings release in the spring, the company expected to deliver adjusted diluted earnings per share (EPS) growth of 10% to 15%. Unfortunately, the ongoing trade negotiations between the United States and Canada, as well as with China and Mexico, forced CN to abandon its 2025 and 2026 guidance. In the Q2 2025 earnings release, the company said it now expects adjusted diluted EPS growth to be below 10% this year.
Investors will want to keep an eye on the Q3 results to see if the situation has changed.
Risks
Trade talks between the United States and Canada are dragging on longer than many analysts anticipated. This impacts purchase decisions by businesses on both sides of the border. CN’s rail network connects ports on the Atlantic and Pacific coasts of Canada to the Gulf Coast in the United States. The company is a key player in the smooth operation of the two economies. CN moves cars, lumber, coal, crude oil, grain, fertilizer, forestry products, and finished products along its lines. Tariffs on key sectors are causing economic uncertainty.
A recession in Canada and the United States is possible if tariffs start to push up prices while companies trim staff to reduce expenses. A drop in overall economic activity would put added pressure on demand for CN’s services.
Another item to watch is the proposed merger of two major American railways. The combination of Union Pacific and Norfolk Southern would create the first American coast-to-coast railway. CN’s American network runs north to south with partnerships with American firms on some routes. Analysts are trying to figure out how CN would be impacted if the deal gets regulatory approval. At the very least, the uncertainty will likely be a headwind for the sector until regulators make a decision.
Opportunity
Most of the near-term issues or threats are likely already accounted for in the current share price. Additional downside is certainly possible on a trade shock or a major market pullback, but investors with a buy-and-hold strategy might want to start nibbling on CN at this level.
The railway remains very profitable, and management is using excess cash to buy back stock while the share price is down. Trade deals between the United States and its major trading partners will eventually get done. Clarity on the trade front should bring investors back into the rail sector.
CN raised its dividend in each of the past 29 years. Investors can currently get a dividend yield of about 2.7%.
The bottom line
Buying CNR on large pullbacks has historically proven to be a profitable move for patient investors. If you have some cash to put to work, this stock deserves to be on your radar.
