This Canadian Dividend Aristocrat Has 46% Upside!

Equitable Group Inc. (TSX:EQB) is trading below historical averages and is the perfect investment for defensive investors, as per value guru Benjamin Graham.

| More on:

Last week, I introduced you to the three most undervalued Canadian Dividend Aristocrats. While analyzing the list, one company stood out for me: Equitable Group Inc. (TSX:EQB). The company is absurdly cheap.

The company operates in the challenging alternative mortgage industry. Yes, the nature of its business is inherently risky, but the market is applying too large of a discount to its shares. Equitable Group’s price-to-earnings ratio of 6.3 is the cheapest of its peers. Should it trade in line with its historical average of 8.8 times earnings, investors could be looking at 46% upside!

Equitable Group should not be the cheapest of the bunch. Why? The company has been an industry leader. Without skipping a beat, it has consistently raised earnings year after year. Its five-year earnings-per-share compound annual growth rate (CAGR) is 13%! The best part: earnings are expected to continue growing over the next few years.

What’s more, Equitable Group has a seven-year dividend-growth streak and is among Canada’s best dividend-growth companies. It has raised dividends in four straight quarters — a streak that is unmatched among Canadian Dividend Aristocrats.

What more do investors want? Its performance has been stellar!

Rules for defensive stocks

Benjamin Graham, the father of value investing, put forward a set of rules for the defensive investors to follow. According to Graham, the defensive investor is one who has little time to monitor their portfolio. They require a portfolio with minimal effort, research, and monitoring. Does Equitable Group pass the test?

Sales greater than $500 million

Pass. In 2017, Equitable Group generated close to $700 million in interest income.

Strong financial condition

Pass. As per Graham, current assets should be at least twice current liabilities. Equitable Group is very close with a ratio of 1.8. Likewise, its long-term debt should not exceed its current assets. No problems here; its ratio is 0.4.

Earnings stability: 10 years of positive earnings

Pass. Not only has Equitable Group posted positive earnings, but it has grown earnings every year!

Uninterrupted dividend payments for at least the past 20 years

Fail. Equitable Group only started paying a dividend in 2004, 14 years ago.

Earnings CAGR of 3% over the past 10 years

Pass. How does 23% sound?

P/E lower than 15 

Pass. It is currently trading at a P/E of 6.3

P/B lower than 1.4

Pass. It is currently trading at 0.8 times book value.

Graham would approve!

Equitable Group meets six of the seven criteria for defensive investors. Ironically, after touting it as of the best dividend-growth stocks, the only one it failed was the dividend rule. Keep in mind, however, that Equitable Group only started paying a dividend 14 years ago. It has been uninterrupted since.

With this in mind, Equitable Group is the perfect stock for the defensive investor.

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 Mat Litalien has no position in any of the companies listed.   

More on Dividend Stocks

Dial moving from 4G to 5G
Dividend Stocks

TFSA Investors: Invest $3,000 for $2,150 in Income Every Year 

If you spend time in the market, you can chart out a plan to earn $2,150 in annual passive income…

Read more »

analyze data
Dividend Stocks

3 Top Dividend Stocks to Buy and Hold Forever

These three dividend stocks on the TSX today have offered substantial gains in the last year and could prove strong…

Read more »

analyze data
Dividend Stocks

3 Surprising Stocks Trading Lower in 2023

Some of the weakest performers of 2023 (so far) may be powerful additions to your portfolio in the right market…

Read more »

Golden crown on a red velvet background
Dividend Stocks

3 Surefire Dividend Aristocrats That Are No-Brainer Buys in 2023

Cash flow-rich companies such as Fortis and Canadian Utilities should be part of your dividend portfolio in March 2023.

Read more »

Airport and plane
Dividend Stocks

Down by 20%: Is Air Canada Stock a Buy After its Earnings?

Air Canada stock continues trading for a significant discount after its earnings release, but it still might not be a…

Read more »

Dividend Stocks

Better Buy for TFSA Passive Income: Fortis Stock or Enbridge?

Fortis and Enbridge stock look cheap today for a TFSA targeting passive income.

Read more »

grow dividends
Dividend Stocks

These 3 Stocks Could Grow (at Least 5X) in the Next Decade if They Repeat History

Three stocks could soar by least five times more if they repeat history with the return of a bull market.

Read more »

work from home
Dividend Stocks

3 Stocks to Hold for the Next 20 Years

Are you looking for some stocks to hold for 20 years or more? Here are three great options to consider…

Read more »