3 Bargain Dividend Stocks for Your RRSP

Looking for bargains with strong dividends? Look no further than Wells Fargo & Co (NYSE:WFC) and two other companies.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

U.S. dividends received in non-registered or tax-free savings accounts will experience a 15% withholding tax.

So, the registered retirement savings plan (RRSP) is the best account to buy and hold discounted dividend stocks such as Wells Fargo & Co (NYSE:WFC), Amgen, Inc. (NASDAQ:AMGN), and American Hotel Income Properties REIT LP (TSX:HOT.UN).

Why is Wells Fargo a bargain today?

Wells Fargo is one of the largest banks in the U.S. The bank’s share price has declined more than 18% from its 52-week high of US$58 to below US$47 per share.

Before the financial crisis occurred, Wells Fargo had a tendency to trade roughly at a multiple of 15. Assuming it can trade at that multiple again, Wells Fargo is fairly valued at US$61 per share, implying the shares are discounted by 23%.

Assuming a more conservative multiple of 13.5, Wells Fargo’s fair value is US$55 per share, implying the quality shares are discounted by more than 14%.

No matter which multiple it could trade at in the future, today the bank has an S&P credit rating of A and offers a yield of 3.2% with a payout ratio of roughly 37%.

With a conservative payout ratio and a history of hiking its dividend every year since 2011, Wells Fargo should be able to continue raising its annual payout.

Why is Amgen a bargain today?

Amgen was founded in 1980 and today it is a leading biotechnology firm. From 2007 to 2015, Amgen increased its earnings per share at a compounded annual growth rate of 11.7%.

In 2011 Amgen started paying an annualized payout of US$1.12 per share. Since then that dividend has more than tripled to US$4 per share.

Amgen last hiked its dividend in the first quarter by 26.6%. Its payout ratio for this year is only expected to be about 36%. This means the company is still retaining roughly 64% of its earnings to grow the business.

At about US$152 per share, Amgen trades at a multiple of 14.2, which makes it a good buy.

Why is American Hotel a bargain today?

American Hotel owns a portfolio of 80 hotel properties and 7,096 guestrooms across 27 states in the U.S.

It has 45 hotels in 22 states, which primarily serve the freight-rail industry that is essential to the U.S. economy. For example, American Hotel has long-term relationships (26-30 years) with Union Pacific, BNSF, and CSX, so about 75% of its rail rooms are guaranteed, securing over 40% of its revenues.

Furthermore, it has 35 branded hotels with five franchise partners, including Hilton and Marriott.

American Hotel has been trading sideways, while its funds from operations per unit have been increasing since 2013. So, there’s a margin of safety for its shares today.

At $10.35 per unit, American Hotel yields almost 8.2%. In the first quarter, its payout ratio was 93.5%. It should be able to maintain its distribution.

Since American Hotel’s distribution can consist of U.S. dividends, interested investors should hold it in an RRSP to avoid any withholding taxes on the distribution.

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 Wells Fargo and Amgen. The Motley Fool owns shares of Wells Fargo.

More on Dividend Stocks

analyze data
Dividend Stocks

2 Safe Dividend Stocks That Could Help You Fight Inflation

A dependable stream of passive income is one way to help offset rising inflation rates. Here are two top dividend…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Stay Invested in a Recession: Increase Positions in 2 Value Stocks

The suggestion of market analysts is to increase positions in two value stocks if you want to stay invested amid…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

3 Dividend Stocks to Buy as Inflation Surges in Canada

If you're worried about how surging inflation may impact your portfolio, here are three of the best dividend stocks to…

Read more »

You Should Know This
Dividend Stocks

High Inflation: The Good and the Bad for Canadians

Consider tucking away some of your long-term savings in quality dividend stocks like Brookfield Infrastructure in this correction.

Read more »

Dividend Stocks

TFSA Investors: Turn $1,000 Into $10,000 in 10 Years

10-fold growth within a decade is rare but not unheard of. You can capture this growth either by predicting a…

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

1 Oversold REIT Stock to Buy for Safe Dividends

If you're looking for stable dividend income from an oversold stock, this office REIT is a perfect option.

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

3 Cheap Canadian REITs to Buy in 2022

Are you looking for passive income? Start treasure digging in cheap Canadian REITs in this market correction!

Read more »

Dividend Stocks

TFSA Passive Income: 3 Undervalued, High-Yield TSX Dividend Stocks to Buy Now

These top TSX dividend stocks with high yields now look attractive to buy for TFSA passive income.

Read more »