As interest rates have remained historically low, the yield for TSX dividend stocks have compressed. Income investors just cannot get real returns out of bonds. Risk-on assets, like dividend stocks, are one of the only alternatives investors can utilize for yield. As a result, dividend stocks have gained value, but their yields have compressed. If you are looking for a mix of income and capital returns, these four top undervalued TSX stocks might do the trick.
A TSX utility stock with strong growth ahead
Algonquin Power (TSX:AQN)(NYSE:AQN) is the largest of these TSX dividend stocks with a market capitalization of $11 billion. Today, it trades just above $19 per share and yields a 3.92% dividend. I like this stock for its combination of strong renewable tailwinds, stable income, and its visible growth pipeline.
Recently, Algonquin was priced down due to some negative effects from the extreme Texas winter event in February. Yet, this stock has a very diversified utility and renewable power businesses. The company operates largely in the U.S., so it should benefit from the Biden infrastructure investment plan. Similarly, it has an aggressive $9.2 billion growth pipeline in motion. Investors can expect at least 9% annual earnings per share growth over the next five years.
An undervalued renewable stock
Another smaller less-known renewable power producer I like here is Polaris Infrastructure (TSX:PIF). The stock trades just below $20 and it also pays a 3.8% dividend. This TSX stock is under-the-radar, largely because it operates 100% in South America. It operates a very high-quality geothermal plant in Nicaragua, as well as a number of hydro assets in Peru.
Compared to renewable peers, this stock is cheap with a price-t0-earnings ratio of 10 times. Yet, the company is very well managed, it has solid long-term contracts, and a very good balance sheet. The company can grow organically with its current geothermal project, but it should also benefit by acquisition opportunities in northern South America.
A value TSX tech stock
A TSX technology stock that pays an attractive dividend today is Sylogist (TSX:SYZ). Right now, it trades for $16 per share and pays a near 3% dividend. While this stock has lagged other tech peers, it has a number of catalysts going forward. First, it has a new management team that is eager to be more transparent and aggressively pursue growth. Secondly, the company is naturally a free cash flow machine.
It provides SaaS solutions for non-for-profit and public organizations. Its revenues are largely recurring and its services are very sticky. As a result, it has a net cash positive balance sheet and ample liquidity to pursue consolidation in this niche software space.
A Canadian wine and spirits leader
An intriguing play on the pandemic recovery, is Andrew Peller (TSX:ADW-A). This TSX stock trades for just $11 per share and pays a 2% dividend. It is one of Canada’s largest producers of wines and spirits. It has a diversified set of offerings that have performed with resilience through the pandemic. Over the past three quarters, it has grown sales and EBITA by 4.6% and 18%, respectively.
The stock is fairly cheap with only a 13 times earnings multiple. Similarly, it just announced it is going to commence buying back stock this year. Combine those factors with pent-up demand for restaurant dining and premium products and this TSX stock should see a nice recovery alongside the economy.
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 Robin Brown owns shares of Algonquin Power & Utilities. and Polaris Infrastructure Inc. The Motley Fool owns shares of and recommends Polaris Infrastructure Inc.