At a time when equity markets are trading near record highs, it is difficult for investors to pick stocks that can derive outsized returns. However, there are several dividend-paying companies that are trading at depressed valuations and should be on the radar of TSX investors. We’ll look at three large-cap stocks trading under $50 that are well poised to outperform the broader markets in 2021.
Enbridge has a dividend yield of 7.5%
The first stock on the list is Canadian energy heavyweight Enbridge (TSX:ENB)(NYSE:ENB). Due to the weakness in the energy sector primarily driven by lower demand amid the pandemic, shares of Enbridge are trading at an attractive valuation.
Enbridge is one of Canada’s largest companies, and it has managed to survive multiple economic cycles to create long-term investor wealth. ENB stock is trading at $43.81, which 21% below its 52-week high. This pullback in shares provides investors an opportunity to buy a blue-chip stock at a lower multiple as well as benefit from a forward dividend yield of a tasty 7.62%.
However as crude oil prices move higher, Enbridge should benefit from an increase in cash flows that will help the company increase its dividend payout as well. Enbridge has increased its dividends at an annual rate of 11% since 1995.
Analysts tracking Enbridge stock have a 12-month average target price of $51.44, which is 17.4% above its current trading price. After accounting for its dividend yield, annual returns will be closer to 25%.
Another blue-chip stock on the TSX that should be on the radar of value investors is Canadian Utilities (TSX:CU). Valued at a market cap of $8.75 billion, CU is a recession-proof company and derives a majority of its cash flows from long-term contracts and its base of regulated assets.
With annual dividends of $1.76 per share, Canadian Utilities sports a dividend yield of 5.5%. The company has, in fact, managed to increase its dividends for 48 consecutive years, showcasing its robust business model.
In the last four quarters, Canadian Utilities generated $474 million in total net income, indicating a profit margin of 14.5%. The company generates close to 85% of sales from regulated assets, which means its cash flows and earnings are stable and predictable.
CU has doubled its asset base in the last decade and invested $15 billion in capital expenditure in this period.
If you are bullish on renewable energy stocks, investing in Algonquin Power (TSX:AQN)(NYSE:AQN) is a no-brainer. AQN operates both regulated utilities and has a non-regulated business as well where it sells wholesale power. It has focused on developing a portfolio of renewable power assets that include wind and solar.
In the last year, AQN has generated $1.6 billion in sales and the stock has a forward yield of 3.54%. Algonquin’s dividends have increased by 126% since 2012, and it has a payout ratio of less than 50%, which means its high yield is secure and sustainable. Further, investors can also expect dividend increases in the future.
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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 owns shares of and recommends Enbridge. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.