Motley Fool investors looking to create a passive income portfolio have some great options these days. Even with the market rebounding, there are still undervalued dividend stocks to pick up. These options are based not only on fundamentals but also on past and future growth from proven strategies. The three stocks I’ll cover today are solid companies that have been around for years. Yet each offers a steal in today’s pricey environment.
Watch the sectors
If you’re looking for a steal today, I would first look at the industries above the stocks themselves. In that case, there are three sectors today that still offer undervalued dividends stocks.
First, there are the Big Six Banks. Despite performing incredibly well during the pandemic, these banks continue to provide undervalued options for Motley Fool investors. The Canadian banks have proven time and again that they can come back from a crash strong, and the pandemic wasn’t an exception.
Then there are certain retail stocks. I say certain because the retail market is a fickle place. In this case, I would look to retail companies in practically essential industries. While this includes grocery stores, it also includes some convenience stores, gas bars, and even home improvement.
Finally, depending on the company, utilities are almost always a safe investment. There are plenty of undervalued dividend stocks out there in the utility sector, but you need to look for the companies growing through acquisition. These companies that have been growing for years, even decades, have mastered the art of growth through acquisition.
The three undervalued dividend stocks Motley Fool investors should then consider hit all these boxes. First, we have the Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM). The Canadian economy continues to rebound, in part thanks to mandatory vaccine programs. With CIBC heavily invested in the Canadian economy, investors should actually see their investments continue to climb in the next few months. Beyond that, the company has performed well for decades at a steady rate. CIBC shares are up 39% year to date, yet continue to trade at a 12.44 P/E ratio, making it a steal.
After that, I would consider Alimentation Couche-Tard (TSX:ATD.A)(TSX:ATD.B). This retail giant focuses its energy on convenience stores and gas bars, owning Circle K if you’re unfamiliar with the company. But it’s so much more. In addition to its thousands of locations in North America, it continues to acquire new opportunities across the world. Most recently, the company also acquired Wilsons Gas Stops and Go! Stores. Yet it still trades at the very affordable 16.66 P/E ratio, which is up 21% this year.
Finally, I would then consider Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) for a few reasons. First, the company has grown through acquisitions over the years, creating a steady stream of revenue increases. Part of those increases has also come from investing in renewable energy, where the world will be investing trillions in the years to come. Finally, it’s also invested in the gas sector, so you get a boost during this rebound. Yet it’s still one of the undervalued dividend stocks trading at a 14.22 P/E ratio.
Add it all together and here’s what you get. These undervalued dividend stocks offer substantial, stable dividends for investors. CIBC currently holds a 3.96% dividend yield, the highest of the Big Six Banks. Alimentation has a 0.67% dividend yield and Algonquin 4.25%. Alimentation is the one that stands out, but it was cut and due to increase as the pandemic comes to a close.
But right now, if you were to invest $15,000 in each stock, that would create a total of $1,331 in annual income! All from stable stocks that are due for a huge boost in the very near future.
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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC.