2 Dividend-Growth Stars Trading at Less Than 10 Times Earnings

Are you looking for an undervalued stock with a great dividend? If so, Equitable Group Inc. (TSX:EQB) and Magna International Inc. (TSX:MG)(NYSE:MGA) are calling your name.

| More on:

As a fundamental investor, I’m always on the lookout for quality companies whose stocks are trading at discounted levels and have great dividends, and, after a recent search of several industries, I came across two very attractive options. Let’s take a closer look at each, so you can determine if you should invest in one or both of them today.

Equitable Group Inc. (TSX:EQB)

Equitable Group is Canada’s ninth-largest independent Schedule I bank with over $24 billion in assets under management. It offers a range of residential lending, commercial lending, and savings solutions to Canadians from coast to coast, and its digital banking arm, EQ Bank, provides state-of-the-art digital banking services as well.

At today’s levels, Equitable Group’s stock trades at 7.3 times fiscal 2017’s estimated earnings per share (EPS) of $9.23 and 6.9 times fiscal 2018’s estimated EPS of $9.68, both of which are inexpensive compared with its five-year average price-to-earnings (P/E) multiple of 7.9; these multiples are also very inexpensive given its current earnings-growth rate, including its 18.5% year-over-year growth to $7.03 per diluted share in its nine-month period ended September 30, 2017.

In addition to having a stock that trades at less than 7.5 times this year’s and next year’s earnings estimates, Equitable Group has a great dividend. It currently pays a quarterly dividend of $0.25 per share, representing $1 per share annually, which gives it a 1.5% yield; a yield this low may make you question how its dividend can be considered “great,” so you must factor in that the bank has raised its dividend for seven straight years, and its recent hikes, including its three hikes in 2017, have it on track for 2018 to mark the eighth straight year with an increase.

Magna International Inc. (TSX:MG)(NYSE:MGA)

Magna is one of the world’s leading automotive suppliers with capabilities that include body exteriors and structures, power and vision technologies, seating systems, and complete vehicle solutions.

At current levels, Magna’s stock trades at 9.9 times fiscal 2017’s estimated EPS of US$6.01 and 8.9 times fiscal 2018’s estimated EPS of US$6.71, both of which are very inexpensive compared with its five-year average P/E multiple of 10.5; these multiples are also very inexpensive given its current earnings-growth rate, including its 11.5% year-over-year growth to US$4.37 per share in its nine-month period ended on September 30, 2017, and its estimated 11% long-term earnings-growth rate.

In addition to having a stock that trades at less than 10 times this year’s and next year’s EPS, Magna has a fantastic dividend. It currently pays a quarterly dividend of US$0.275 per share, representing US$1.10 per share annually, giving it a 1.8% yield. The automotive giant has also raised its annual dividend payment for eight consecutive years, and I think its very strong financial performance will allow it to continue this streak in 2018 by announcing a hike in its fourth-quarter release next month.

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 Joseph Solitro has no position in any stocks mentioned. Magna is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »