3 Fairly Valued Dividend Stocks With Decent Yields

Fair or undervaluation is an attractive trait, whether you are looking for dividend or growth stocks.

| More on:
Increasing yield

Image source: Getty Images

It doesn’t matter if you are looking for dividend stocks or growth stocks; valuation should play a key role in your choice of assets. Ideally, you should find undervalued stocks that offer powerful dividends and amazing growth potential, but we don’t live in an ideal world. And even though this combo is easy enough to find during market crashes, it’s challenging to come by when the market is stable.

Still, if you stick to dividend stocks and are willing to pay a relatively “fair” price for an asset, there are three stocks you might consider looking into.

An electric service company

Utility businesses are considered significantly more stable than the broad market and most other businesses because of their reliable income potential. The same sense of security comes with Toronto-based Hydro One (TSX:H), an electric service company that has recently joined the ranks of aristocrats by raising its dividends for five consecutive years. The yield is 3.4% at the moment.

The dividends seem secure because of more than just the nature of business. The payout ratio has stayed pretty stable for the last few years and is currently 33.5%. The company is currently trading at a price-to-earnings of 10.2 and a price-to-book of 1.7. Despite the fact that it has been growing quite consistently since 2019 and has returned about 53% since then.

An insurance company

Not all insurance companies — the same companies that help us feel financially secure about life, property, and health — offer the same level of security when it comes to their own stocks. But Manulife (TSX:MFC)(NYSE:MFC) can be considered an exception. The company doesn’t offer considerable capital appreciation potential, but it has a generous yield of 4.6%, and its status as an aristocrat promise that the payouts will increase year after year.

This aristocrat is undervalued right now, trading at a price-to-earnings ratio of nine and price-to-book ratio of just one. The revenues have taken a turn for the worst in the first quarter of 2020, but the company is expected to turn things around going forward. It has an impressive national and international presence and is growing its business quite extensively in some foreign markets.

A construction company

Construction companies hitched a ride on the momentum of the real estate sector. Bird Construction (TSX:BDT) grew over 144% from its crash valuation to its recent peak, but the stock is normalizing now and is currently trading at a 14% discount. The bargain reaches the valuation as well. Since the company is trading at a price-to-earnings ratio of 9.7 and a price-to-book ratio of 2.1.

Bird Construction is still offering an attractive 4.5% yield, which might become even more attractive if the stock slides down even further. The company recently got significantly more sizeable and expanded both its reach and construction capabilities through a merger. It has an impressive history and caters to the construction needs of a wide variety of sectors and industries.

Foolish takeaway

Undervalued dividend stocks can be a potent addition to your portfolio, and if you buy when the stock is both under or fairly valued as well as discounted, you get to lock in a better yield as well. And if the stock also offers a decent capital appreciation potential, that’s just the cherry on top.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Dividend Stocks

Gas pipelines
Dividend Stocks

3 Stocks for High-Yield Income Each Month

Are you seeking passive income? Consider investing in these high-yield TSX dividend stocks now.

Read more »

edit Colleagues chat over ketchup chips
Dividend Stocks

2 Dividend Stocks for Beginner Investors in March 2023

Are you a new investor looking for great dividend stocks to buy? Here are two top picks!

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

Need $500 in Passive Income Each Month? These 2 TSX Stocks Are Your Top Bets

You can create a robust monthly dividend income portfolio around SmartCentres REIT, and another top passive income play today.

Read more »

A worker gives a business presentation.
Dividend Stocks

2 TSX Dividend Stocks to Buy Today and Hold for the Next 5 Years

These TSX industry leaders look cheap today and pay attractive dividends that should continue to grow.

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

3 Dividend Stocks to Buy Before the End of March

These dividend stocks all have earnings coming up that could see share prices rise higher, so get in on a…

Read more »

grow dividends
Dividend Stocks

5 Canadian Dividend Stocks With Yields of 5% or More

Here are five of the best dividend stocks Canadian investors can buy to boost their passive income in the current…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Looking for $200/Month in Alternative Income? Buy 2,000 Shares of This Stock

Here’s a renewable energy-focused monthly dividend stock you can buy now to create a reliable source of alternative income in…

Read more »

Dividend Stocks

Why I Continue Buying Shares of This Magnificent Dividend Stock Hand Over Fist

This glorious dividend stock is a buy in all market situations. It not only gives you market returns but also…

Read more »