The Motley Fool

Income Investors: Is Laurentian Bank of Canada Worth Placing on Your Radar?

If you’re a retiree or an income investor who depends on the income from their stocks, then you can’t go wrong with any one of the Big Five banks, a telecom, or a utility. But what about some of the lesser-known income stocks that nobody talks about? These hidden gems could offer investors a safe, growing dividend as well as nice long-term capital gains if you know where to find them.

If you’re not from Quebec, then you’ve probably never heard of Laurentian Bank of Canada (TSX:LB). The bank provides services to individuals as well as small- and medium-sized businesses. It’s well known for its specializations that cater to small businesses as well as real estate developers. The bank has over $41 billion worth of assets, and it’s well positioned to become a dividend-growth king over the next few years.

The stock has flown under the radar of most investors, and I don’t think it gets the credit it deserves.

The stock currently has a juicy 4.3% dividend yield, which has grown by a huge amount over the last decade. The stock rebounded very sharply after the Financial Crisis, but the stock essentially flat-lined under the $50 level of resistance for most of the seven years that followed. It wasn’t until earlier last year that the stock broke out to test the $60 level. Could the stock be headed on a sustained rally higher? Or is it going to flat-line for another couple of years?

Laurentian Bank may test the mid-$50 levels again, and I don’t think there’s too much room for it to run from here. The stock currently trades at a 12.6 price-to-earnings multiple, a 1.2 price-to-book multiple, and a 1.9 price-to-sales multiple, all of which are lower than the company’s five-year historical average multiples of 11.2, 1.1, and 1.5, respectively.

The stock isn’t a steal by any means; it’s actually slightly on the expensive side, so it shouldn’t come as a surprise if it doesn’t go anywhere over the next year, but this shouldn’t stop you if you’re a retiree looking for a stable source of income.

The company is a dividend-growth king, and you’ll do very well over the long run, even if the stock market falls flat on its face. The stock is starting to give up a portion of the gains it enjoyed late last year, so I’d sit on the sidelines and wait for a better entry point when the dividend yield is closer to 5%. You’ll enjoy a better margin of safety to go with a fat, growing dividend that will grow for many years.

Sure, you could stick with a Big Five bank, but I think it’d be worthwhile to add Laurentian Bank to your radar. It’s a dividend-growth king like its big brothers, and if it gets substantially cheaper than them, you should probably load up.

Stay smart. Stay hungry. Stay Foolish.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Joey Frenette has no position in any stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.