TFSA Investors: 2 Dividend-Paying Stocks for 2020

With most economists predicting a slowdown in 2020, is it time to add dividend stocks such as NFI Group and Alimentation Couche-Tard to your portfolio?

| More on:
A close up image of Canadian $20 Dollar bills

Image source: Getty Images

Dividend stocks always seem like an attractive investment. A steady stream of income always helps, especially when the market appears overvalued and upside potential is limited.

Here, I look at two Canadian-based stocks that not only provide dividends, but are also trading at an attractive valuation.

NFI Group

NFI Group (TSX:NFI) is a Canada-based bus and motorcoach manufacturer. It has over 32 fabrication, manufacturing, distribution and service centres in North America. While manufacturing accounts for the majority of revenue, NFI also generates sales from after-sales service.

The United States accounts for 87% of sales while Canada accounts for the rest. Shares of NFI Group are trading at $26 at writing. The stock lost 12% in market value on November 13, 2019 after it missed consensus revenue and earnings estimates in the September quarter.

NFI reported sales of $725.13 million with adjusted earnings of $0.24 in the third quarter. While revenue rose 19.8%, earnings fell 58.6% year over year. Analysts had forecast NFI sales at $740.19 million and EPS at $0.45 in Q3.

NFI stock has underperformed the broader markets this year. The stock is down 22.6% year to date and has declined close to 34% since June 2019. One of the reasons for NFI’s poor performance has been its earnings miss.

NFI has failed to meet consensus earnings estimates in each of the last three quarters. In Q3, it missed estimates by 46.7%. In the June quarter, it reported earnings of $0.42 which was 17.6% below estimates of $0.51. The company’s earnings of $0.26 in March was also 36.6% below estimates of $0.41.

However, the stock price decline has resulted in a dividend yield of 6.6% for investors. Analysts also expect revenue to grow by 16.3% to $2.93 billion in 2019 and by 12% to $3.28 billion in 2020.

Though earnings are expected to fall by 40.2% in 2019, it might gain 31.4% next year. NFI stock is trading at a forward price to earnings multiple of 12.4 and is valued at $1.61 billion, or 0.41 times forward sales.

Alimentation Couche-Tard Inc.

Shares of Alimentation Couche-Tard Inc. (TSX:ATD.B) have gained 26.7% in the last year, outperforming the broader markets.

ATD is a Canadian convenience store giant that focuses on the sale of goods for immediate consumption as well as road transportation. ATD owns proprietary and franchise-based stores.

Valued at a market cap of $48.26 billion and an enterprise value of $57.37 billion, ATD sales at estimated at $57.94 billion in fiscal 2020 and $58.95 billion in 2021.

ATD stock is trading at a forward price to earnings multiple of 24.9. Comparatively, analysts expect its earnings to grow by 10% annually in the next five years.

It has a dividend yield of under 1%. While this might seem less than attractive, ATD is a stock that can be a safe bet against the upcoming slowdown. Its price-to-sales ratio stands at 0.84, while the enterprise value to sales ratio is around 1.

The company has also grown its dividends at an annual rate of 29% in the last five years. Further, with a dividend payout ratio of 10%, the company has enough leeway to keep increasing these payments.

While it has a strong presence in Canada, ATD is now looking to expand south of the border. The United States a huge market, providing ATD with plenty of room to grow.

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.

The Motley Fool recommends NFI Group. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. NFI Group, Bank of Nova Scotia and Alimentation Couche-Tard are recommendations of Stock Advisor Canada.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »