Buying dividend stocks when the stock price has taken a dive usually allows you to lock in a juicier yield. But if you also throw discounted valuation into the mix, the overall asset becomes even more attractive. However, not all discounted stocks are also undervalued and vice versa, and if you prioritize valuation discount over price discount, here are three stocks that should be on your radar.
A financial stock
IGM Financial (TSX:IGM), a division of Power Corporation, is a wealth and asset management company that primarily operates in Canada but with a broader overall reach. It works with institutional investors throughout North America, Europe, and Asia. It’s a sizeable firm with about $256 billion in total assets under management and three underlying companies.
The company is currently offering a 4.9% yield and is trading at a price-to-earnings of 13.5 and price-to-book of 1.8 times. While it’s not undervalued per se, it’s very attractively priced, especially considering that the stock grew by almost 60% in the last 12 months. While wealth management and asset management are its two primary businesses, the company also engages in strategic investments through five major partners.
A commercial REIT
If you are looking for a truly undervalued stock, Artis REIT (TSX:AX.UN), a diversified commercial REIT and one of the largest of its kind, is worth considering. The REIT is currently trading at a price-to-earnings of 4.4 and a price-to-book of just 0.6 times. In its current form, the stock is a far cry from what it used to be in its prime (around 2004) when the stock used to trade for over eight times the price.
Still, it’s a decent growth bet since the company has grown its payouts in 2020 and again in 2021 when several REITs slashed their dividends. The 5.1% yield is quite attractive, and if the stock has decent capital growth potential, your gains will be slightly magnified if you buy the stock when it’s this undervalued.
A high-yield mining stock
For the high end of 5% yield, Jaguar Mining (TSX:JAG) might be a good pick. The company is currently offering a 5.6% yield and is considered a junior mining company. It has a market capitalization of $412 million and operates primarily in Brazil, where it develops and operates the mines. The company also focuses on the ESG profile of its mining operations.
Jaguar Mining is currently trading at a price-to-earnings of 5.1 and a price-to-book of 1.7. The stock is undervalued and discounted. It’s 47.7% down from its recent peak. The company only recently started paying dividends, and the payout ratio is quite stable. It’s likely to grow its dividends if gold prices spike again in the near future.
Undervalued stocks with high yields aren’t exclusive to market crashes. At any given time, you can find a decent selection of such stocks on the TSX. But not all undervalued dividend stocks are worth buying, as a yield isn’t the only factor worth considering. You have to look into the capital appreciation potential of the stock as well as the dividend growth potential.
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.