Value Investors: 3 Dirt Cheap Dividend Stocks to Buy Before 2019

Stocks don’t get much cheaper than Bank of Montreal (TSX:BMO)(NYSE:BMO), Inter Pipeline Ltd. (TSX:IPL) and Canadian Tire Corporation Limited (TSX:CTC.A).

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Market declines don’t seem like a lot of fun when you log into your brokerage account, but long-term investors should be salivating at the opportunity presented to them today. There are dozens of great Canadian companies trading at fantastic prices.

Here are three great choices to add to your portfolio, today. Don’t delay: you never know when these great companies will move higher.

Bank of Montreal

Canada’s big banks haven’t been this cheap in years. As an added bonus, some are even trading at fresh 52-week lows, which has traditionally been a nice time to buy.

While I’m a big fan of all of Canada’s big banks, I’ve focused on buying Bank of Montreal (TSX:BMO)(NYSE:BMO) shares lately. I like the company’s U.S. exposure — which is growing faster than operations here at home — and its exposure to a recovering stock market via the capital markets division.

But most of all, I like the operations here in Canada. Sure, the Canadian economy is feeling some pressure right now. The energy sector has had some well-documented struggles, and cracks may be starting to form in our housing market. These issues may turn into some losses, but they’re easily managed. Most companies will repay their loans, and even if homeowners start walking away from their mortgages, BMO is protected by mandatory mortgage default insurance on the riskiest loans.

What a powerful business model — getting the borrower pay for insurance that guarantees the bank doesn’t lose a penny on a mortgage.

It may take months for the share price to recover. In the meantime, investors get a 4.2% dividend — one that’s virtually guaranteed to be higher a year from now. You don’t have to worry about the stability of the dividend either; BMO has shared a portion of their profits with shareholders each year since 1829.

Inter Pipeline

Like banking, pipelines are a great business. As long as the oil keeps flowing, steady profits will flow back to the pipeline’s owner. And we all know how difficult it is to get new pipelines approved in Canada.

Inter Pipeline Ltd. (TSX:IPL) gets about half of its profit from pipelines transporting bitumen from the oil sands. The company has also diversified into conventional oil pipelines, natural gas liquids processing, and bulk liquids storage. It also recently announced that it would be constructing Canada’s first integrated Propane Dehydrogenation and Polypropylene complex — a $3.5 billion investment that should add $500 million to annual earnings before interest, depreciation, and taxes.

Upon first glance, the stock’s 8.1% dividend might not look sustainable, but don’t be fooled. The payout ratio is a mere 57% of funds from operations. Inter Pipeline has also hiked its dividend each year since 2009 — a streak that management doesn’t want to jeopardize.

Canadian Tire

I’ve noticed one thing about Canadian retail success stories; these companies expand from one type of retail into true conglomerates.

Canadian Tire Corporation Ltd. (TSX:CTC.A) has accomplished just that. Its namesake brand gets all the attention, but the company also owns well-established chains like Marks, Sport Chek, and Nevada Bobs, among others. The company has a huge financial services division and has recently expanded its clothing offerings, acquiring jacket maker Helly Hansen.

Next step? Expanding its Triangle Rewards program across all of its banners and into other types of businesses. Canadian Tire Money has long been a consumer favourite, and moving it online should encourage customers to sign up for credit cards that allow them to collect rewards at other stores.

Admittedly, such an expansion into financial services could be viewed as worrisome at this point in the financial cycle, but Canadian Tire is diverse enough to weather such a storm. And, frankly, credit cards and other financial services are far superior businesses to selling stuff.

Shares trade at a very reasonable 13 times trailing earnings and recent dividend increases have boosted the payout to nearly 3%. The company has also been aggressively buying back shares over the last few years; the total float outstanding has decreased from 81 to 66 million shares since the end of 2014.

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 Nelson Smith owns Bank of Montreal and Inter Pipeline Ltd. shares.   

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