3 Undervalued Stocks for Your Dividend Portfolio

An undervalued and preferably a discounted dividend stock is an excellent choice from a valuation and yield perspective.

| More on:

Image source: Getty Images

Not all undervalued dividend stocks are discounted, though combining both “traits” might offer you the best return potential. The discount will help you lock in a higher yield, while the valuation might add to the capital-appreciation potential.

However, if you are looking for heavily undervalued dividend stocks, three should be on your radar.

A REIT

Artis REIT (TSX:AX.UN) is a commercial REIT with an office-heavy, geographically diversified portfolio of properties. Almost half the portfolio of 156 properties (47.7%) comprises office properties, and about 40% of the properties are in the U.S.

Unfortunately, it’s also the least-leased asset class of all — 86% compared to 95.5% of the industrial. However, this trend will most likely change once the work-from-home trend becomes a thing of the past.

The REIT is currently quite brutally undervalued, even if you consider that the REIT pool is presently leaning towards the undervalued side. It has a price-to-earnings of 4.7, even though it’s currently trading at a 3.6% premium to its pre-pandemic peak and its highest price yet. It’s now offering a yield of 4.4%.

A metal distribution and processing company

If you are looking for a dividend stock with a severe competitive edge, Russel Metals (TSX:RUS) would be a good bet. It’s the premium metal distribution and processing company that makes the bulk of its revenue from its metals service centres. The company has a network of 131 locations, mainly in Canada but about a fourth in the U.S.

The stock is preferred primarily for its dividends though right now, it’s also an attractive buy from a valuation perspective. The current yield is 4.3%, the price-to-earnings ratio is 5.1, and the price-to-book ratio is just 1.8 times. It also offers cyclical capital potential, though it’s not very impressive. Considering its valuation, the current growth phase might continue longer than usual.

An iron ore royalty company

Labrador Iron Ore Royalty (TSX:LIF) has royalty in the Iron Ore Company of Canada. And even though it’s the smallest shareholder of the three, it gets to take advantage of the underlying company’s strengths.

They include its high-purity iron ore (65%) and an extended mine life — at least 25 years based on proven reserves. This ensures that the financials behind the dividends will remain solid for at least two more decades.

The stock is currently offering a juicy yield of 4.9% and is undervalued as well, with a price-to-earnings of 6.8. It also offers decent capital-appreciation potential.

The stock has appreciated over 133% in the last five years alone, and considering the pre- and post-pandemic growth pattern, the growth might continue for a relatively long time.

Foolish takeaway

The three undervalued stocks can be solid additions to your dividend portfolio. All three have strong positions in their respective industries and healthy financials, which may translate into stable dividends over a long period of time.  

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

coins jump into piggy bank
Dividend Stocks

Invest $15,000 in This Dividend Stock for $61 in Monthly Passive Income

Monthly passive income is well within reach, especially when you have a solid dividend stock like this on hand.

Read more »

RRSP (Registered Retirement Savings Plan) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

RRSP: 2 Reliable Canadian Dividend Stocks to Own for Decades

These stocks offer high yields and a shot at decent capital gains.

Read more »

concept of real estate evaluation
Dividend Stocks

Invest $7000 in This Dividend Stock to Make $600 in Passive Income

Looking to make monthly passive income? Timbercreek Financial (TSX:TF) stock's 8.6% dividend yield could turn into a steady stream of…

Read more »

space ship model takes off
Dividend Stocks

Dividend Investors: 2 Stocks That Could Soar in 2025

These top TSX dividend stocks might be oversold right now.

Read more »

Start line on the highway
Dividend Stocks

TFSA Passive Income: 4 Stocks to Buy and Never Sell

Looking for stocks that create perfect passive income? This TFSA dream team is the perfect portfolio just waiting to happen.

Read more »

analyze data
Dividend Stocks

Is Canadian Tire Stock a Buy for its 4.4% Dividend Yield?

Canadian Tire may have a current dividend yield of 4.4%, but that's not the only reason to buy the high-quality…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Make $5,985/Year in Tax-Free Income

Investing in First National Financial (TSX:FN) stock could produce $5,985/year in tax-free passive income.

Read more »

Asset Management
Dividend Stocks

3 of the Best Dividend Stocks to Buy for Long-Term Passive Income

These companies have fundamentally strong businesses and a growing earnings base that supports their payouts.

Read more »