3 Dividend Value Stocks to Buy Now

If you’re interested in dividend value stocks, Fairfax Financial Holdings Ltd. (TSX:FFH) and these two others will suit you just fine.

| More on:

If there’s one thing buy-and-hold investors ought to like better than value stocks, it’s dividend value stocks.

Morningstar’s Emily Halverson-Duncan recently backtested 711 Canadian stocks over an 18-year period looking for companies with low P/E, P/B, and P/CF ratios and stocks paying dividends with a payout ratio less than 60%.

Over this period, the portfolio gained 16% annually, more than double the TSX. Of the 15 stocks in the portfolio at the end of February, these are the three dividend value stocks to buy now.

Dividend value stock # 1

Like Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) and Warren Buffett, Fairfax Financial Holdings Ltd. (TSX:FFH) and Prem Watsa make for interesting reading.

Watsa’s annual chairman’s letter to shareholders is a must-read. In this year’s letter, Watsa reminds shareholders that 2017 was a record year, despite the fact that several hurricanes in the U.S. and Caribbean cost the company $1.3 billion.

Fairfax’s book value per share grew 24.7% in 2017, eclipsing both its 32-year average of 19.5% and the 23% growth achieved by Berkshire Hathaway in the past year. While Watsa doesn’t have as many years in the books as Buffett, the Fairfax CEO and chairman is doing a good job keeping pace.

With a forward P/E of 11.6, a P/B of 1.1 and a P/CF of 4.8, FFH stock is cheaper than it’s been at any time in the past five years. By comparison, Berkshire Hathaway has a forward P/E of 19.3, a P/B of 1.4, and a P/CF of 10.6.

With a 2% yield and $2.4 billion in cash and marketable securities held in the holding company, it’s no wonder Fool.ca contributor Joey Frenette recently called Fairfax a great “insurance policy.”

With its dividends and value, you can’t go wrong with Fairfax.

Dividend value stock # 2

My next pick isn’t one of the Big Five Canadian banks, but that shouldn’t keep you from considering an investment in Laurentian Bank of Canada (TSX:LB), a stock that’s absolutely been pummeled in 2018, down almost 16% year to date.

The big drop comes as a result of an issue with the two residential mortgage securitization programs it uses, something I wrote about back in December when I recommended Laurentian, only to see it fall out of bed over the next three months.

In its Q1 2018 conference call, CEO Francois Desjardins addressed what the bank is doing to ensure the problem goes away.

“Since November 1st we have been implementing improved processes for the adjudication of new mortgage loans. We continue to monitor and adjust these processes in order to achieve the level of quality that we have set for ourselves,” stated Desjardins February 28. “Moreover, the implementation of the new B20 guidelines is also leading to further changes in our procedures. We are making good progress towards the resolution of the situation with the third-party purchaser, or TPP.”

To make a long story, short, Laurentian has taken the necessary steps to fix the situation, so third parties aren’t sold mortgages that shouldn’t have been sold by the bank in the first place.

As Desjardins stated, Laurentian is a conservative lender; this will only make it stronger.

The bottom line: I liked Laurentian in December. At 16% less and a 5.2% yield, I like it even more.

Dividend value stock # 3

This last stock is a very tiny company with a market cap of just $225 million. Yet Quarterhill Inc. (TSX:QTRH)(NASDAQ:QTRH) also trades on NASDAQ and pays a dividend yield of 2.7%.

What gives? Well, a history lesson should give you a better idea why it’s only trading at less than book value.

Quarterhill used to be called Wi-Lan Inc., a company that got its start manufacturing wireless modems, but was essentially forced out of the market by larger, better-capitalized Asian companies. To survive, current CEO James Skippen pivoted the company in 2006 to protecting and monetizing its patents.

In 2017, Wi-Lan’s name was changed to Quarterhill to reflect its new business strategy of acquiring promising growth companies. In fiscal 2017, Wi-Lan generated a lion’s share of the company’s $134 million in revenue, generating more than enough operating profits to cover the $4.5 million in annual dividend payments.

I wouldn’t put your entire portfolio into Quarterhill, but it is a micro-cap stock on the TSX worth watching.

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 Will Ashworth has no position in any stocks mentioned. The Motley Fool owns shares of Berkshire Hathaway (B shares). Fairfax is a recommendation of Stock Advisor Canada.

More on Investing

Stock analysts were once excited about construction company Aecon as an investment.
Coronavirus

Bull or Bear: Why Analysts Changed Their Tune on Aecon Stock

Analysts had been champing at the bit for the construction company, but the tides have turned.

Read more »

Specialty Brands faces higher raw materials costs.
Dividend Stocks

What’s Next for Premium Brands Stock?

Shares of the specialty food production and distribution company have fallen about 25% since last October.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

2 Interesting Buys in Any Market

Here are two intriguing buys in any market climate that offer defensive appeal as well as growth and income earning…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Should You Buy Bank Stocks Now?

Canadian bank stocks are getting cheap. Is this the right time to buy?

Read more »

stock data
Stocks for Beginners

2 Reliable Stocks Beginners Can Buy Amid the Market Selloff

As the broader market turmoil continues, new investors can buy these two reliable dividend stocks to get good returns on…

Read more »

Biotech stocks can be good yet risky investments.
Coronavirus

Is Bellus Health Stock Still a Buy After 30% Earnings Jump?

The biotech continues to make progress on obtaining FDA approval for its chronic-cough therapy.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

TFSA Investors: 3 TSX Stocks for Tax-Free Passive Income

These Canadian corporations have strong visibility over future earnings and dividend payouts.

Read more »

Piggy bank next to a financial report
Investing

Do You Have Cash Sitting in Your TFSA? Now Is a Great Time to Buy Stocks

If you have cash in your TFSA that you're looking to invest, now is a great time to buy high-quality…

Read more »