2 Dividend Stocks That Are the Cheapest They’ve Been in 10 Years

Follow Warren Buffett’s lead into severely undervalued stocks like Suncor Energy Inc. (TSX:SU)(NYSE:SU) and this other dividend stud.

| More on:
Various Canadian dollars in gray pants pocket

Image source: Getty Images

Who says there’s no value to be had in this “expensive” market?

While severely undervalued plays may be few and far between on the S&P 500, the TSX Index is chock-full of stocks that are the cheapest they’ve been in years, leaving an abundance of opportunity for those who consider themselves deep value investors.

With Alberta’s ailing oil patch in a world of pain, many energy stocks out there are trading at a fraction of their value. But with no timely catalysts or any sources of optimism, it’s tough to justify initiating a contrarian position in some of the most battered of Canadian energy stocks unless you’re an extremely patient investor who’s willing and able to tune out.

Warren Buffett recently gave Canada’s energy scene a vote of confidence with his bet in Suncor Energy (TSX:SU)(NYSE:SU), but with other smart money managers heading in the opposite direction, does it still make sense to put your faith in the Oracle of Omaha, or could his recent Canadian energy bet sour as fast as Kraft Heinz did?

Suncor Energy

Suncor is a king among men in the Canadian oil patch. Despite the sudden downturn in 2014, the company has continued to reward its investors with a bountiful dividend, which now currently yields 4.4%, close to the highest it’s been in recent memory thanks in part to a combination of excessive share price depreciation and continued dividend raises.

Most notably, Suncor maintains an exceptionally healthy balance sheet, unlike many of its peers in the space that have been liquidating assets in order to keep the lights on.

As Buffett’s preferred way to play the Canadian oil sands, Suncor is arguably one of the “safest” ways to bet on the Albertan oil patch. While most of the upside depends on exogenous events, Suncor has worked wonders at the company-specific level amid the unfavourable environment, which is really all you can ask for.

The stock has a reliable dividend that’ll be well supported by integrated operations. Any sustainable move higher in oil prices will likely bode well for investors in the grander scheme of things, but in the meantime, there’s the dividend to collect while you wait while the industry continues treading water.

Canadian Natural Resources

Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is another king in the oil patch. The battered energy giant has continued to unlock tremendous value for long-term shareholders through acquisitions. The company’s recent acquisition of Devon Canada’s remaining assets came at a price that appeared to be a considerable discount to its intrinsic value.

While Canadian Natural already has a treasure trove of land-locked assets, I do believe Canadian Natural is setting the stage for a monster rally should Canada’s energy scene finally catch its big break.

Such a big break could be years away, however, so investors ought to be content with Canadian Natural’s 4.8%-yielding dividend and management’s devotion to “protecting shareholders” from what’s been a nasty industry environment.

At 6.4 times EV/EBITDA and 7.9 times trailing earnings, Canadian Natural stock is close to the cheapest it’s been in a very long time, with a yield that’s the highest it’s been in over a decade.

Foolish takeaway

Recent production curtailments ought to combat the wide WCS-to-WTI discount until some real progress can be made on the pipeline front. While neither Suncor nor Canadian Natural will be able to turn on the spigot to send shares rocketing significantly higher over the medium term, I do believe the recent sell-off in both stocks has been exaggerated beyond proportion.

As such, current valuations lead me to believe that both names could correct to the upside. The dividends of both companies remain robust and will beckon long-term investors in as industry headwinds remain.

Stay hungry. Stay Foolish.

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 Joey Frenette has no position in any of the stocks mentioned.

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 »