Canadian Nationwide Railway (TSX:CNR) and Canadian Pure Assets (TSX:CNQ) sat out the massive rally within the TSX over the previous 12 months. Contrarian dividend buyers are questioning if CNR and CNQ are actually undervalued and good to purchase for a self-directed Tax-Free Financial savings Account (TFSA) or Registered Retirement Financial savings Plan (RRSP) targeted on dividends and long-term complete returns.

Canadian Nationwide Railway

CNR trades close to $136 per share on the time of writing, in comparison with $160 a 12 months in the past. The inventory was as excessive as $180 at one level in 2024.

The slide within the share worth over the previous 18 months is because of various components. In 2024, labour strikes at CN and key ports disrupted operations and compelled clients to search out different transport choices to maneuver their cargo. As well as, CN confronted interruptions attributable to wildfires in Alberta. The ensuing lack of enterprise led to weaker-than-expected monetary ends in 2024, with income rising solely barely from the earlier 12 months and adjusted earnings falling on account of the rise in bills.

2025 has been a narrative of tariffs. Administration initially anticipated the enterprise to ship 10% to fifteen% development in adjusted diluted earnings per share, however decreased steerage when the second-quarter (Q2) earnings outcomes got here out in July, citing unsure financial circumstances. Adjusted diluted EPS development is now anticipated to be beneath 10% this 12 months. The Q3 2025 outcomes, due out across the finish of October, will give buyers a good suggestion of whether or not or not the outlook has improved.

A proposed merger between two American railways, Union Pacific and Norfolk Southern, is including additional volatility to the rail sector as analysts attempt to decide how the mix would impression the opposite gamers.

Close to-term uncertainty is anticipated to proceed till the US types out its commerce negotiations with China, Canada, and Mexico. Agreements will finally get finished, nonetheless, and readability on tariffs ought to present a lift of confidence for companies that use CN’s companies.

CN has raised the dividend in every of the previous 29 years. The railway stays very worthwhile, and buyers can choose up an honest 2.6% dividend yield on the present worth whereas they anticipate a rebound. Shopping for CNR on large pullbacks has traditionally confirmed to be a savvy transfer over the long term.

Canadian Pure Assets

Canadian Pure Assets is an power big in Canada with intensive oil and pure fuel manufacturing and reserves. Weak power costs have put stress on the share worth over the previous 12 months, giving buyers an opportunity to purchase CNQ at a reduced stage. The inventory at present trades close to $43 per share. It was near $50 a 12 months in the past and was as excessive as $55 within the spring of 2024.

Vitality analysts broadly anticipate the worldwide oil market to be in a surplus place by means of 2026. This can be a headwind for oil costs. West Texas Intermediate (WTI) trades close to US$58 per barrel on the time of writing. It was above US$80 final 12 months.

Regardless of the difficult market circumstances, CNRL continues to generate sturdy earnings. The corporate says its WTI breakeven is within the US$40 to US$45 per barrel vary. Manufacturing development from acquisitions and profitable drilling packages helps offset the decrease margins.

Trying forward, Canada is contemplating constructing new pipeline capability to allow producers to promote extra oil to worldwide consumers. Any additional entry to international markets would profit CNRL. The corporate can also be a significant pure fuel producer. New liquefied pure fuel export services in British Columbia will assist CNRL increase its buyer base and may help manufacturing development.

CNRL raised the dividend in every of the previous 25 years. Buyers who purchase CNQ on the present share worth can get a dividend yield of 5.4%.

The underside line

CN and CNRL pay good dividends that ought to proceed to develop. If in case you have some money to place to work in a contrarian portfolio, these shares need to be in your radar.