High Yield: These Passive-Income Stocks Look Undervalued

High-yield dividend stocks like Extendicare Inc. (TSX:EXE) are perfect passive-income opportunities.

| More on:
Various Canadian dollars in gray pants pocket

Image source: Getty Images

High yield combined with low risk is the winning formula for passive-income investors. Unfortunately, most stocks offer only one of the two. If the dividend is too high, the stock is probably exposed to some risk. If the risk is too low, the fixed-income component is mediocre. 

However, there are some exceptions. Some companies offer essential services in industries with relentless demand. If these stocks are overlooked or undervalued, they’re potentially less risky for investors. Here are a few high-yield dividend stocks that are undervalued enough to offer downside protection. 

Senior living

Extendicare (TSX:EXE) strikes the perfect balance between payout and low risk. The Markham-based company operates 120 senior living and healthcare assistance facilities across the country. It’s a safe and boring business with predictable revenues. The company’s been around since the 1960s, which means the team has plenty of experience managing costs and operation risks in this line of work. 

Senior care is in a secular growth phase. Canada’s greying population creates plenty of opportunity for this sector. In 2016, people over the age of 65 already outnumbered children. By 2030, one in every four Canadians will be over that age. The nation’s population is greying, and demand for senior care is only going to increase in the decades ahead. 

This pool of endless demand means companies like Extendicare can deploy capital with confidence. Its network already includes 120 facilities across Canada. That makes it one of the largest senior care providers in the country. 

Investors seemed to have overlooked this opportunity. The stock trades at just 21 times annual earnings per share. It also offers a robust 6.6% dividend yield that’s been expanding for years. This high-yield passive-income opportunity should certainly be on your radar. 

Oil stock

In Canada, the demand for energy is nearly on par with real estate and senior living. The oil and gas sector has been the bedrock of our economy for decades, and this isn’t likely to change anytime soon. In fact, the world faces an acute energy shortage in the years ahead, as the transition to renewables makes the grid more delicate. 

Experts predict that energy stocks like Enbridge (TSX:ENB)(NYSE:ENB) should see higher prices and robust revenue in the years ahead. That hasn’t been priced into the stocks yet. Enbridge stock is still trading at a price-to-earnings ratio of 17.3. It offers a dividend yield of roughly 7%. At that rate, the stock could pay back your upfront investment within 14 years through dividends alone!

What makes Enbridge even more appealing is the fact that its dividends are expanding. This year, the company increased its payout by 3%. If natural gas and oil prices remain elevated next year, investors can expect another boost. 

Enbridge is a high-yield dividend stock trading for less than fair value that should be on your watch list for 2022. 

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 Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »