Now This Looks More Like a Healthy Stock Market

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and another dividend stock are good buys for long-term investors.

| More on:

Stock prices inevitably go up and down. Although investors generally want to see the market go up, it’s actually a good thing for it to dip. Markets that dip are healthier. If they don’t, then the stocks will eventually be bid up too much and be too expensive to buy.

With the latest market dip, some stocks are now trading at more attractive valuations. Value investors can take a closer look at these stocks.

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) trades at a price-to-earnings (P/E) multiple of about 11.8 at roughly $78 per share. This more or less aligns with its long-term normal multiple. So, the stock is reasonably valued.

Banks will benefit from interest rate hikes. So, analysts have increased the growth forecasts of the banks. In the case of Bank of Nova Scotia, analysts estimate the bank will grow its earnings per share by at least 7.3% per year on average for the next three to five years.

Through Bank of Nova Scotia, investors can gain more international exposure compared to the other Canadian banks. Moreover, Bank of Nova Scotia offers a safe 4% yield. Interested investors should buy some shares here and more on any further dips.

share price

Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN) trades at a P/E multiple of about 18.5 at roughly $12.90 per share, which is a good value. Higher interest rates will hurt utilities, but Algonquin is more immune to higher rates because of its above-average growth. Algonquin is expected to grow its earnings per share by about 14% per year on average for the next three to five years.

Algonquin is a solid company with power and utility assets. The power portfolio has 1,500 MW of net installed capacity across 38 renewable and clean energy facilities in six provinces and eight U.S. states.

About 88% of the generation is under long-term contracts with an average term of 16 years. This portfolio aims for unlevered after-tax rates of returns of more than 8%, which is quite good.

Algonquin’s utility portfolio consists of 33 distribution utilities in 12 U.S. states, including water distribution and waste treatment, electricity distribution, and natural gas distribution. This portfolio is regulated and serves more than 750,000 customers.

Algonquin’s profitability is largely regulated or contracted, so its results are pretty predictable. Its 4.5% yield is safe. The company aims to grow its dividend by 10% per year for the next few years while improving its payout ratio.

Investor takeaway

Dips are healthy for stock markets. Can the market go lower from here? Sure, it can. However, that’s the beauty of buying individual stocks instead of buying exchange-traded funds or mutual funds; investors can determine the intrinsic values of companies and figure out “buy” price ranges for each stock they want to buy. Right now, Bank of Nova Scotia and Algonquin look like good buys for long-term investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of Algonquin.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »