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Income Investors: 2 Depressed Stocks for You

The cheaper the share price of a stock, the higher the yield and income you’ll get. Here are two depressed stocks with strong dividends and upside potential that you should know about.

A safe 6.2% yield

You might not know Plaza Retail REIT (TSX:PLZ.UN), but you’ll know its biggest tenant, Shoppers Drug Mart, which was acquired by Loblaw in 2014.

Shoppers contributes 25.9% of Plaza Retail’s base rent revenue. Its other large tenants include KFC and Dollarama, which contribute 8.5% and 5%, respectively, of its base rent revenue. Its other tenants contribute 3.6% or less to its base rent revenue.

The retail REIT stocks haven’t been faring well this year because of the scare from online retail. However, Plaza Retail should do better than its bigger peers and has shown commitment to growing its distribution.

It has started paying a distribution in 2002 and has increased it every year since then. With an adjusted funds from operations payout ratio of 81% in the first three quarters and an average lease term to maturity of 5.9 years, Plaza’s yield is safe.

At the recent quotation of $4.34 per unit, the stock yields 6.2% and trades at an uncommonly cheap multiple of 12.5. If it trades at a fair multiple of 15, we could see upside of nearly 21% from the stock. So, the stock is a worthy candidate for income and total returns for conservative investors.

sit back and collect dividends

A safe 5.5% yield with a growing dividend

Income investors should also check out Enbridge Inc. (TSX:ENB)(NYSE:ENB). At $44 per share, the stock offers a safe 5.5% yield. Its payout ratio is expected to be about 62-68% of cash flow this year. And the company will likely continue growing its dividend at a nice pace.

It’s true that Enbridge shares have been dragged down for multiple reasons, including risks in its projects, dilution that occurred from its recent, big acquisition, and higher interest rates. However, the depressed shares are exactly what makes today an attractive entry point to buy Enbridge for long-term investors.

After Enbridge absorbs the Spectra Energy Corp. acquisition, it could trade above $60 per share again, which represents upside potential of at least 36%!

Investor takeaway

In value investing, investors try to buy stocks when they’re cheap. The depressed shares of Plaza Retail and Enbridge should attract conservative investors looking for safe income and upside potential in the long run. As the companies show they have the ability to grow their dividends, the shares will eventually be bid up again.

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Fool contributor Kay Ng owns shares of Enbridge. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

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