A Low-Risk/High-Reward Dividend Stock to Help You Beat the Market This Year

At a time when the FOMO (fear of missing out) is prominent in the stock market, it often pays to take a step back to look at some of the out-of-favour stocks that have been overly punished. Warren Buffett doesn’t follow the herd, and if you’re looking to get rich slowly and safely, then you shouldn’t either. Instead, as a Buffettarian investor, you should be looking for severely marked-down merchandise in the bargain bin, rather than opening up your wallet to get a piece of whatever the “sexy” play is at a given point in time.

Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR) is anything but a “sexy” play for most investors exhibiting the FOMO mentality; however, contrarian value investors like me find the name ridiculously attractive at current levels because I believe the average investor has been ignoring value that’s really hiding in plain sight!

I’ve been incredibly bullish on Shaw over the past few years and while the stock hasn’t really taken off yet, I’m still very optimistic about the company’s disruptive potential in the Canadian wireless scene. Moreover, given Shaw’s relative margin of safety at its current levels, I think the stock is one of the best low-risk/high-reward stocks on the entire TSX today.

The stock currently trades at a two price-to-book (P/B) multiple, which is 20% lower than its five-year historical average P/B multiple of 2.5. The stock is currently down over 21% from its all-time high and over 13% year-to-date thanks in part to a broader sell-off across all telecom stocks. With elevated fears over the upward trajectory in interest rates, the industry-wide weakness is understandable. However, in the case of Shaw, I believe it’s completely unwarranted, especially when you consider the fact that it’s the disruptor that’s driving major changes to the Canadian telecom scene.

Management has said that it intends on becoming an equal wireless player in Canada, with a ~25% share of total wireless subscribers. While this statement may seem far-fetched to some, given the low switching costs and Shaw’s aggressive “upgrade and poach” strategy, I think management will reach its goals much sooner than many of us believe. And it appears that the general public is overlooking the growth potential of Shaw’s wireless business and they’ll continue to do so until the proof becomes apparent in the form of off-the-charts wireless growth numbers.

Canadians are willing to open their wallets wide when it comes to big, trusted telecom services, even if they know they’re getting a raw deal versus the global average. Moreover, switching rates haven’t surged, even though subscribers have reportedly been mistreated through disturbing and unethical sales tactics.

When it comes to the Big Three, the average Canadian consumer likely believes that they’re all guilty of the same thing. The highly competitive landscape is pushing commissioned sales staff to scrap ethics entirely for the sake of fattening their wallets. And up until now, they’ve been getting away with it because Canadians haven’t really been open to the idea of an alternative wireless provider, likely because they prefer sticking with a name they can trust.

Shaw has been a trustworthy name in the Canadian cable space for decades, and I think Canadian wireless subscribers won’t hesitate to switch, especially as Shaw continues to improve its network quality while maintaining below-average prices for its services.

At current valuations, it appears that nobody is considering the future prospects of Shaw’s wireless business. And given the recent decline in shares, investors have an opportunity to lock-in a ~4.8% dividend yield while they wait for what I believe will be a nice bull run over the next three years.

You’re getting an above-average dividend yield with overlooked growth prospects at a tremendous discount to its intrinsic value. At these levels, I think the stock is a must-own, not just for long-term income investors, but also for shorter-term investors who are looking for above average total returns over the next year.

Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette owns shares of SHAW COMMUNICATIONS INC., CL.B, NV.

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