2 Bruised Dividend Titans Worth Buying on the Cheap

The TSX Index might be doing well, but there’s some trouble in certain corners of the Canadian market. Most notably, the railway and telecom scenes have been home to stocks that have been under growing pressure. Indeed, it feels like the rail stocks or the fallen telecoms still have a massive uphill battle ahead of them, one that might not be so quick to be conquered, even with smart moves made in recent quarters to shore up capital and get things back in the right direction. As it turns out, it takes a lot of time to stage a turnaround, especially if headwinds linger for longer while tailwinds become less meaningful in comparison.

What good is a mild tailwind if it’s taken over by massive headwinds that have caused investors to rush out, perhaps with the intent of getting back in in the future. In any case, I think there’s value to be had in the rail and telecom scenes. And while I have no idea when tailwinds will overtake headwinds, I do think that the year-over-year quarterly comparables are getting easy, probably too easy, even if things aren’t yet back in high gear.

In this piece, we’ll check in on BCE (TSX:BCE) and CP Rail (TSX:CP), or Canadian Pacific Kansas City (CPKC), two interesting candidates that might be worth a closer look if you’ve got an appetite for value amid the latest rotation from high-growth tech to the dividend-paying steady Eddies.

BCE

BCE’s dividend yield took a reduction straight on the chin. But it’s looking steady, now going for just shy of 5%. I do think there’s room for growth, which analysts might still be underestimating. Of course, the telecom business doesn’t seem to be getting any easier.

Stiff competition in wireless and structural pains facing the media side could continue to hold BCE back. But so far this year, it has been a nice run, with shares up more than 8% at the time of this writing. Can the relief rally have legs to last into year’s end? Possibly. Either way, I think BCE stock is getting ridiculously discounted, now going for 5.2 times trailing price-to-earnings (P/E).

With a low 0.66 beta and a painful crash of more than 50% already in the rearview, I think it’s time to start bottom-fishing in the name. The technical picture is starting to look better as well, and if a head-and-shoulders bottom does end up happening, I wouldn’t be surprised if shares are in for a march past $40 per share.

We’ll have to wait and see. Either way, the stock is cheap, the dividend is bountiful, and things are finally starting to look up. As BCE wanders into coming quarters (which have low expectations), I expect past cost cuts could act as fuel for a continuation of the rally.

CP Rail

CP Rail is a challenged name that spiked this year, gaining close to 12% year to date. Like BCE, I think there’s room to run. Though the 25.3 times trailing P/E might limit an explosive move higher. Earnings need to do some of the heavy lifting now that the multiple is getting rich again.

With a market cap above $100 billion, I’d scale into the name steadily over time. The 0.80% dividend yield is quite small, and there isn’t a steal to be had here. However, once macro tailwinds present themselves, I do view the name as one of the bigger catch-up plays in the market.

Is it too soon to get back in? It’s hard to tell, but I would definitely prepare for pullbacks along the track, which now seems to be on course for a move higher.

The post 2 Bruised Dividend Titans Worth Buying on the Cheap appeared first on The Motley Fool Canada.

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More reading

• What’s Happening With BCE’s Dividend?
• 3 Canadian Blue-Chip Stocks to Hold Through 2026 and Beyond
• 1 Dividend Great I’d Buy Over Telus or BCE Stock Today
• Has BCE Stock Finally Hit Rock Bottom?
• Top Canadian Stocks to Buy With $10,000 in 2026

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Pacific Kansas City. The Motley Fool has a disclosure policy.