This Is the Best-Valued Canadian Dividend Aristocrat: 30% Upside!

Canadian General Investments Ltd. (TSX:CGI) is trading at a significant discount to historical averages and its net asset value.

| More on:
Golden crown on a red velvet background

Image source: Getty Images

One of my favourite starting points for new income investments is the list of Canadian Dividend Aristocrats. These are Canadian-listed companies that have dividend-growth streaks of five or more consecutive years.

Those that have shown a commitment to growing their dividends are more likely to maintain them when times are tough. The dividend-growth strategy has been a popular one over the past number of years. As a result, stock prices have risen to all-time highs.

The problem for value investors is that it’s tough finding value in such a frothy market. That being said, there are always value opportunities if you look hard enough. One stock that immediately jumps out is Canadian General Investments (TSX:CGI).

Performance

Canadian General is a closed-end investment fund that is focused on medium- to long-term investments. It primarily invests in Canadian equities and its objective is to provide better-than-average returns. The company’s top three Canadian holdings include Shopify, Air Canada, and Canopy Growth.

How has it fared? Its stock price has delivered in a big way. Year to date (YTD), the stock is up a healthy 8.25% and its one-year return is 19.21%. In comparison, the TSX Composite index is in the red YTD, and it only has a 4.45% return over the past year.

Canadian General has similarly outperformed the TSX over the past two-, three-, and five-year time frames. Despite this outperformance, the company remains undervalued.

Valuation

Over the past 12 months, Canadian General has earned $7.59 per share. Why is this relevant? The company is trading at $25.75 per share, or a very cheap 3.4 times earnings. This is near the bottom of its five-year average.

Historically, the company has traded very close to its net asset value (NAV). Today, General Investments is trading at a significant discount to its NAV of $37.16. Once the company returns to trade in line with historical averages, investors can be looking at a 30% gain.

The company’s Graham number, the uppermost price an investor should pay for a stock, is $78.15. This 68% gap is by far the widest among Canadian Dividend Aristocrats.

One thing is clear: Canadian General is cheap.

Rare triple threat

It’s not often you come across a company that qualifies as a growth, income, and value stock. Canadian General checks all three boxes. Over the past five years, the company has raised its dividends by 15% on average. Its payout ratio is a mere 10%, so income investors can be assured of continued dividend growth.

Canadian General has a long and storied history having been established in 1930. Over the past 50 years the company has consistently outperformed the TSX. Its rare to see such established streaks of outperformance.

Don’t get caught watching. It’s only a matter of time before the market realizes the significant discount at which Canadian General is trading. In the meantime, there is limited downside given current valuations.

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.

Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Fool contributor Mat Litalien is long Shopify. Shopify is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

grow money, wealth build
Dividend Stocks

Got $3,000? 3 TSX Growth Stocks to Buy in January 2023

Top TSX growth stocks that look appealing for 2023.

Read more »

woman data analyze
Dividend Stocks

Need Passive Income? Turn $15,000 Into $851 Annually

This passive-income stock is already climbing higher, up 16% in the last three months! Yet it's still valuable, so you…

Read more »

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

Retirees: 3 Reliable Canadian Dividend Stocks to Buy Now for Passive Income

Top TSX dividend stocks now appear oversold.

Read more »

Dividend Stocks

For $100 in Passive Income Each Month, Buy 1,500 Shares of This REIT

REITs such as Northwest Healthcare can enable investors create a passive-income stream as well as benefit from capital gains.

Read more »

A colourful firework display
Dividend Stocks

2 Canadian Growth Stocks (With Dividends) to Start 2023 With a Bang

Here are two of the best dividend-paying Canadian growth stocks you can invest in at the start of 2023 and…

Read more »

sale discount best price
Dividend Stocks

4 Insanely Cheap Canadian Stocks to Buy for Passive Income

The recent bear market has created some incredible bargains, especially for those looking for passive income. Here are four cheap…

Read more »

A bull outlined against a field
Dividend Stocks

3 Cheap Stocks I’d Buy Before the Bull Market Arrives

Undervalued TSX stocks such as Savaria and Well Health can help investors generate market-beating gains when markets recover.

Read more »

Increasing yield
Dividend Stocks

5 Canadian Dividend Stocks With Yields of 4% or More

If you want dividends that yield over 4%, you don't have to look far. Here are five large-cap Canadian stocks…

Read more »