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2 Undervalued Dividend Stocks to Add to Your TFSA

The market may have been good to cannabis stocks, but other industries haven’t felt the same love. The two stocks below remain undervalued and have good yields. It could be a great time to invest in these companies before their share prices take off.

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) has climbed 13% in the past six months, but the share price is still lower than its peers. While in the past, CIBC has typically traded at lower multiples than banks such as Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Royal Bank of Canada (TSX:RY)(NYSE:RY) because it has had more exposure to the Canadian market, the bank has recently addressed those concerns.

With the acquisition of PrivateBancorp Inc., CIBC has made its way into the U.S., and it is looking to expand its reach there. Despite this, the stock has still not been valued closer to its peers. At a price-to-earning (P/E) ratio of under 11, it is far less than the 14 times earnings that RBC trades at and is also less than the multiple of 13 that TD is valued at.

This may not seem like a big difference, but when you consider that P/E is a big driver of bank stocks, especially since their earnings are so high, it can be significant. In its trailing 12 months, CIBC’s earnings per share have totaled $11.24, so even a 0.5 increase in the P/E multiple would raise the share price by more than $5.

As an added bonus, CIBC also pays a higher dividend than the two banks mentioned above. While it’s hard to go wrong with a bank stock, especially as interest rates are rising, you’ll have more potential upside with CIBC.

Magna International Inc. (TSX:MG)(NYSE:MGA) is a stock on the rise and will only take off further as self-driving technologies continue to evolve. The auto parts maker’s MAX4 system has already reached a level four on the autonomous driving scale (the highest is five), whereas most vehicles currently equipped with driverless technologies are only at levels one or two.

There’s definitely a lot of potential for the company, and it expects another strong year in 2018. However, the current value just doesn’t show the same level excitement or optimism. At a P/E ratio of ~13, it’s not valued at what you would expect for a company that is involved in the development of cutting-edge technology. By comparison, BlackBerry Ltd. (TSX:BB)(NYSE:BB) has been involved in developing software for self-driving vehicles, and it trades at more than 24 times earnings.

Magna’s current dividend of 2% leaves something to be desired, but as the company continues to grow, and especially if self-driving technologies continue to evolve, that will translate into stronger financials and more free cash to distribute in the form of dividends.

In the past six months, the stock has risen more than 20%, but that could just be the start for a company with a very bright future ahead. In its most recent quarter, the company’s sales were up over 7% and a strong earnings result in February could help push the stock’s value even higher.

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Fool contributor David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of BlackBerry. BlackBerry and Magna are recommendations of Stock Advisor Canada.

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