Dividend growth investing may not be as exciting on the surface, especially compared to higher-yielding dividend stocks, momentum plays, or high-yield stocks with newfound momentum behind them. Either way, I believe that those with long-term horizons should look to the market’s proven dividend growers as names to buy and hold through the ups and downs of markets. Indeed, we’re in the middle of a fierce bull market right now, and while there was a bit of volatility going into mid-October, the longer-term trajectory remains higher.
With the TSX Index slipping by just over 1% on Friday’s session, thanks in part to the drag of gold miners, which were overdue for a bit of a dip after an incredible year of gains on the back of soaring gold prices, I think there’s an opportunity for investors to do a bit of dip-buying.
Undoubtedly, not only are the precious metal miners intriguing after Friday’s fumble, but in dividend growth plays stand out as increasingly interesting in this kind of environment, where the TSX Index is showing a bit of choppiness after a near-parabolic move since the summer began. This kind of volatility, I think, is not only normal after a red-hot summer, but healthy for the bull market as it looks to end a year with high double-digit percentage gains.
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CN Rail
CN Rail (TSX: CNR) used to be a market darling, but this year, shares have been a massive laggard, falling by close to 9% year to date. Now down more than 25% from its peak, the bear is firmly in control of CNR shares. However, I do think a technical bottoming process is underway. CN Rail delivered underwhelming guidance just a few months ago due to tariffs. Still, as the $83.7 billion railway runs into earnings at the end of the month, I do think there’s room for a bit of a positive surprise.
If you’re a long-term investor, I’d say the swelling dividend yield (can you believe that it’s swelled to 2.7%?) and the steady dividend growth pace make the name a dirt-cheap stock to buy in a stock market that most would think is somewhere between fair and expensive.
At 18.5 times trailing price-to-earnings (P/E), the dividend grower might be in for some margin expansion if it can show us that it can weather an industry storm. With strategic investments, including those meant to enhance capacity and operating efficiencies in Western Canada, I do think that analysts could be at risk of underestimating the firm as it looks to roll forward after another forgettable year for the stock. As for tariffs and the potential for further labour woes, questions remain as CN Rail tries to manage its way out of a harsh situation.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is a more enticing dividend grower for the yield lovers out there. Despite soaring close to 49% in two years, the yield sits at just shy of 5%. With the big bank recently announcing layoffs as a part of its attempt to streamline costs and make things more efficient, investors may be a bit confused as to the path forward. If the banks are firing on all cylinders, job cuts seem to be perplexing, to say the least.
In any case, layoffs with firms that are thriving are not uncommon these days, especially as AI helps firms unlock significant cost savings. It’s too early to tell how much of an impact AI had on the recent move, but I do think that the profound technology could transform the business of banking by leaps and bounds in the coming years, as agents and automation look to really take off.
For now, BNS stock looks like a cheap breakout play going into the final few weeks of the year. With a strong balance sheet and room for generous dividend hikes, the name is worth buying and stashing away as the big banks position themselves for more big beats.
