Investing in a cheap dividend stock can be a great way to secure a high yield while also maximizing your potential returns over the long term. Below are two dividend stocks that are paying more than 5% annually and that are trading below their book values that could be great additions to your Tax-Free Savings Account (TFSA).
RioCan Real Estate Investment Trust (TSX:REI.UN) is down more than 45% this year, and investors who are willing to take on some risk investing in retail can score a big potential return here. The real estate investment trust (REIT) provides investors with recurring monthly payouts that can provide lots of regularity and a steady stream of cash flow for your portfolio. And at $0.12 every month, investors can earn $1.44 on an annual basis for every share of RioCan that they own. That’s right around 10% of the stock’s current price. Earlier in the year, the yield would’ve been around half of where it is today. On a $25,000 investment, that means you could be earning around $2,500 per year in dividends. And inside of a TFSA, that money isn’t taxable.
On July 29, RioCan released its most recent quarterly results and the REIT still reported positive funds from operations (FFO) of $109.9 million, down from $144.7 million a year ago. The company said that it was able to collect 86.8% of its quarterly rent for the period, including funding that it expects from the government and also taking into account short-term deferrals.
On a per-unit, diluted basis, its FFO comes out to $0.35. If that were to main consistent over a 12-month period, that would put RioCan’s FFO at a run rate of $1.4 per unit — just shy of its annual dividend per share of $1.44. However, this is also after a brutal Q2 that was plagued by shutdowns and many companies struggling to stay in business. Things will likely improve in future periods, and that’s why its dividend still looks to be safe at this point in time. But for investors who want to take extra precautions, they may want to wait until October 29, when RioCan will release its results for the third quarter.
RioCan’s shares are currently trading at 0.6 times their book value.
AltaGas (TSX:ALA) is another cheap stock you can add to your TFSA, trading slightly higher at a price-to-book ratio of 0.7. The energy infrastructure company is down a more modest 18% this year, as it’s a bit more of a stable investment than RioCan. Although AltaGas is in the midstream business, it’s still predominantly a utility company. In its most recent quarterly results, its revenue of $1.06 billion was down a relatively modest 9.8% from the $1.18 billion it reported in the same period last year. Its utility business makes up more than 70% of its top line, generating $723 million in sales this past quarter. Despite the impact of COVID-19, the company still posted a profit of $21 million in Q2, down from $41 million a year ago.
This is another stock that pays investors on a monthly basis. With its $0.08 monthly payments, investors will be earning 5.9% on an annual basis. It’s another stellar payout that can help you keep that cash flow coming every month, whether it’s to help pay your bills or just to build up your savings.
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 David Jagielski owns shares of ALTAGAS LTD. The Motley Fool recommends ALTAGAS LTD.