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2 Discounted Dividend Stocks to Add Long-Term RRSP Riches

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Uncertainty in advance of the U.S. midterm elections had a sizable impact on the TSX. Now that tension seems to be unwinding. Did you notice Canadian bank stocks — many of whom have large operations in the U.S. —  slumped? The market was pricing in the fear that political instabilities would negate the corporate tax relief and rising interest rates that are anything but tailwinds for the U.S. financial sector. Here’s two value stocks that are also beaten down for reasons:

Value alert: take one
Political uncertainty is part of the reason shares of Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) have stumbled. But it’s not U.S. politics. You need to go further south to Latin America. The wake of a tumultuous election in Brazil has served as a destabilizing force in the region that could also influence sentiment for Scotiabank investors. From the company website you can read that: “Scotiabank is proud to be the only Canadian financial institution operating with a full banking license in Brazil since October 2011.”

Fool contributor Matt Smith recently wrote that Scotiabank is “Canada’s Best Bank for Growth.” I tend to agree. Earnings-per-share for Scotiabank has consistently been “up and to the right” on a chart, remarkable and consistent. You can’t argue with that. The sell-off has been fairly aggressive. At this point there is a 14% margin of safety in the sense that Scotiabank is undervalued relative to the future earnings estimates.

Scotiabank pays a 4.78% dividend. Here’s your chance to underpay for an income stream well suited for an RRSP account.

Value alert: take two
Then there’s Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ), a large cap, revenue generating machine primarily focused on Alberta’s oil patches but generally diverse across fuel sources. The stock has underperformed amid depressed market prices for Canadian fuel sources. In 2018 the bears are winning this battle against the bulls. Apart from the domestic uncertainties for this sector as a whole, the creep of debt load over several years should be viewed as a liability for shareholders.

If you go back to the 2013 annual report, you’ll see that paying down long-term debt was a priority that the company seems to have lost sight of, which leaves me a little worried. Long-term debt was $21 billion as of the June quarterly report, making the debt to book ratio of 39.6%. Management previously expressed a desire to keep the ratio within a 25% to 45% range, and management had better make sure that they don’t reach the self-imposed upper bound.

Having expressed some caution, CNRL could be a real mover and shaker into 2019 and was listed as a Fool Top Pick to start November. CNRL pays a 3.57% dividend. This stock offers income plus the prospect of a significant share price bounce.

Foolish takeaway
Over the long haul, investors will do well with either Scotiabank or CNRL. I’ve acknowledged some investment risks. With eyes wide open, I’d give the nod to Scotiabank right now. Investors leaning toward CNRL to bolster energy stocks in their portfolio could use the futures markets for Canadian fuel sources as a timing guide.

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Fool contributor Brad Macintosh owns shares of BANK OF NOVA SCOTIA.

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