For those dividend investors who are a little concerned that yields could fall as rates fall, there are some intriguing dividend growth names that I think could provide shareholders with consistent increases every year. So if you’d rather have a steady annual payout increase than a big yield up front, then I think the following names are even more deserving of a place in your TFSA, RRSP, or even non-registered account (remember that dividend tax credit).
National Bank of Canada
National Bank of Canada (TSX:NA) is performing relatively modestly so far this year, up just over 15%, while most other banks are up closer to 25% this year. The National Bank’s impressive rise began in late 2023, while most of its fellow major banks were still under significant pressure. Be that as it may, NA stock still stands out as an excellent option for investors who want greater exposure to domestic banking.
The stock looks cheap with a price-to-earnings ratio of 14.9 times trailing price-to-earnings ratio, although it is not the cheapest name of the Big Six cohort. The dividend yield of 3.1% also leaves much to be desired. Still, I think the main reason to stay with the National Bank is the relative growth, and of course the dividend growth profile.
The bank is relatively small with a market capitalization of less than $60 billion, which leaves more room if the bank can expand steadily. With National Bank making some very smart acquisitions, I have to say that NA stock is a name that I expect to be near the top of the pack when it comes to performers in the Canadian banking world.
CP rail
CP rail (TSX:CP) or Canadian Pacific Kansas City (CPKC), as it is known today, has had a disappointing performance over the past two years, with an increase of only 8%, while the TSX Index has risen to a double-digit percentage gain. Indeed, it is not only CP that felt the headwind. Most North American railroads have had to deal with it in recent years.
Believe it or not, CP stock hasn’t fared the worst of the mounting industry pressure. Either way, the stock looks quite valued, even expensive with a price-to-earnings ratio of 24.1 times trailing price-to-earnings, given the direction the rail sector is heading into the fourth quarter. The disruption in rates has indeed had an impact, and it is uncertain when such problems will disappear. Regardless, I think the stock is a great candidate for long-term dividend growth for those willing to grab the name at $107 and change per share.
While CP is growing more than its peers, it is also more expensive with significant rate risk that investors should consider carefully before buying. The 0.84% ​​yield is also quite small. Although I think CP makes up for this with its dividend growth profile. If things go well, CP stock could get back on track. Until then, investors may want to play this cautiously, with incremental purchases over the next six months.
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