Canadian investors are searching for good TSX dividend stocks that trade at reasonable prices to add to their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolios.
Valuations are arguably stretched across the broader market, but some segments sat out the rally last year and could be good contrarian picks right now for patient investors.
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Canadian National Railway
Canadian National Railway (TSX:CNR) ranks among Canada’s largest companies with a market capitalization around $83 billion. The stock trades near $134 at the time of writing compared to a high of $180 in early 2024. It was as low as $127 in the past six months, before bargain hunters started moving in, sensing the pullback had gone too far.
Canadian National Railway plays a strategically important role in the smooth operation of both the Canadian and U.S. economies. The company operates nearly 20,000 route miles of tracks that connect ports on the Pacific and Atlantic coasts of Canada with the Gulf Coast in the United States.
Trade disruptions caused by U.S. tariffs forced CN to reduce its guidance last year. Management originally expected to deliver adjusted diluted earnings per share (EPS) growth of 10% to 15% for the year. In the summer it lowered the guidance to below 10%. In the Q3 2025 earnings results, the company maintained that projection.
Investor will get the Q4 and full-year 2025 results on January 30, as well as an update on the outlook for 2026. CN already said it will reduce its capital spending from $3.4 billion in 2025 to $2.8 billion in 2026. This frees up $600 million in cash flow that can be used to buy back stock and support the dividend.
Risk
Tariffs and ongoing trade negotiations between Canada, the U.S., and Mexico will likely lead to ongoing volatility in the rail sector. The deadline for deciding to extend the existing Canada-U.S.-Mexico Agreement (CUSMA) is July 1, 2026. Investors should expect to see negotiations go right down to the wire. There is a possibility that the U.S. will decide to pursue independent agreements with Canada and Mexico. That could prolong the uncertainty and would be a headwind for CN and its peers as customers wait for clarification on tariff rates.
A proposed merger between Union Pacific and Norfolk Southern, two American railways, has added more uncertainty to the rail industry. Analysts say the deal, which would create a complete coast-to-coast east-west rail company, could lead to some customers leaving CN’s network, depending on the routes. The extent of the potential hit to CN is still up for debate. CN and its peers are lobbying regulators to block the merger due to competition concerns.
Opportunity
The recent agreement between Canada and China to reduce tariffs on agriculture products and electric vehicles is already leading to new orders being placed for Canadian canola and beef. In return, up to 49,000 electric vehicles per year will start to arrive from China. Additional trade agreements with China could be on the way. This should drive up demand for CN’s services.
At some point, the trade agreements between the United States and its neighbours will get done. When that happens, CN should get a boost in demand for its services as businesses move back to normal trade patterns.
The bottom line
Near-term volatility is expected, but most of the risk is likely already priced into the stock. CN remains very profitable. The board is using excess cash to buy back shares at the discounted price and continues to increase the dividend. The company raised the dividend in each of the past 29 years.
CN is a contrarian pick today, but investors with a buy-and-hold strategy should put CNR on their radar while it is out of favour.
