Value Investors: 2 Dirt-Cheap Dividend Stocks to Buy Before 2020

Stocks such as Equitable Group (TSX:EQB) are trading at some of the lowest price-to-earnings-to-growth (PEG) ratios on the TSX Index.

| More on:
Growth from coins

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

To use a real estate saying, it is a sellers’ market, and buyers are finding themselves paying hefty valuations, as the TSX Index continues to hit new highs almost daily. Year to date, the S&P/TSX Composite Index is up a whopping 18.97% and is on pace for its best year since 2009 when it rebounded from the financial crisis.

This is great news for those currently invested in the markets and growth investors whose portfolios are no doubt sitting on nice gains. However, value investors are finding it hard to deploy their cash. The good news is that regardless of how frothy the market gets, there is always value to be found. With that in mind, here are two stocks that are trading at cheap valuations and should outperform in 2020.

Equitable Bank

How can a stock that has gained 82% in 2019 still be considered cheap? Equitable Bank (TSX:EQB) has been a star in 2019, and despite its run-up, it still has plenty of room to run. It is important to realize that the entire sector was chronically undervalued. Equitable was trading at ridiculously cheap valuations for the better part of 2018, and the gains in 2019 are reflective of strong macro trends.

It is still, however, trading at a cheap 10 times earnings and only 8.27 times forward earnings. This is well below the industry average of 11.8 times earnings and 10.8 times next year’s earnings. It also has a tiny P/E-to-growth (PEG) ratio of 0.38, which is one of the lowest PEG ratios on the Index.

The company’s stock price is clearly not keeping up with expected growth rates of 25% annually. Analysts have a one-year price target of $131.29 per share, which implies 18% upside from today’s price of $110.88 per share. Even the lowest price on the street ($128) is well above today’s price.

Equitable is also one of the leading dividend-growth companies in Canada. It is a Canadian Dividend Aristocrat and has grown the dividend by mid-teens over the course of its eight-year dividend-growth streak.


Next up, we have a leading green energy company. Cascades (TSX:CAS) is the perfect stock for those interested in socially responsible investing. It uses significantly less energy and water that its manufacturing peers, and over 80% of its products are made from recycled products.

The company is trading at a cheap 11.96 times forward earnings, and much like Equitable Group, it has an ultra-low PEG ratio (0.37). Analysts expect the company to grow earnings by an average of 37% annually over the next five years, and as such, the market is significantly discounting its growth potential. Finally, Cascades is also trading at only 0.74 times book value, which is well below its five-year historical average of one times book value.

Similar to Equitable, Cascades is trading at a discount (14%) to analysts average one-year target and is trading below the lowest price on the street ($13.25 per share).

Cascades does not have an impressive dividend-growth streak, but that could change very quickly. It has paid out an uninterrupted dividend for years, and this past August, Cascades doubled the quarterly dividend to $0.08 per share. This more than makes up for years of dividend stagnation. Considering Cascades expected growth rates, it may also mark the start of an impressive dividend-growth streak. The dividend is well covered, and it has plenty of room to grow moving forward.

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 stocks mentioned.

More on Bank Stocks

edit Four girl friends withdrawing money from credit card at ATM
Bank Stocks

3 Cheap Bank Stocks to Buy Today

Canadians may want to snatch up top bank stocks like Bank of Montreal (TSX:BMO)(NYSE:BMO) that look undervalued today.

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Should You Buy Canadian Bank Stocks After the Recent Correction?

Dividends and fairly valued Canadian bank stocks look attractive. But the macro picture could be a spoiler!

Read more »

Piggy bank next to a financial report
Bank Stocks

Scotiabank (TSX:BNS): A Stock to Buy and Hold Forever

Scotiabank stock is a well-diversified business, boasts a strong balance sheet, and is a reliable dividend stock, making it an…

Read more »

question marks written reminders tickets
Bank Stocks

Are Canadian Bank Stocks Oversold?

Canadian bank stocks are down more than 20% from the 2022 highs. Is this a good time to buy?

Read more »

money cash dividends
Bank Stocks

Market Selloff: Time to Hold Financial Stocks

Income investors should consider holding financial stocks for dividend safety in this period of uncertainty.

Read more »

Man holding magnifying glass over a document
Bank Stocks

TD Bank Stock Looks Severely Undervalued Going Into the 2nd Half of 2022

TD Bank (TSX:TD)(NYSE:TD) stock has been under pressure amid the TSX Index correction but may be among the best bounce-back…

Read more »

Coworkers standing near a wall
Bank Stocks

Policy Rate: 2 More Hikes After July 2022 to Reach Neutral Level

The Bank of Canada might need three more rate hikes beginning in July 2022 to reach neutral levels.

Read more »

You Should Know This
Bank Stocks

75-Basis-Point Rate Hike? Here’s What it Means for Stocks

Aggressive rate increases dampen investors’ sentiment and send share prices tumbling, because the hikes can impact corporate earnings or profits.

Read more »