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

Dividend Stocks

This Canadian Monthly Dividend Stock Pays a Stunning 9% Yield

Pro REIT is a Canada-based real estate company that offers you a forward yield of 9% in 2025. Is this…

Read more »

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

How I’d Invest $7,000 in My TFSA for $660 in Tax-Free Annual Income

Canadians looking for ways to make the most of the new TFSA contribution room should consider investing in these two…

Read more »

Doctor talking to a patient in the corridor of a hospital.
Dividend Stocks

This Dividend King Paying 7.5% in Monthly Income Is a Must-Have

This high-yield TSX stock might not be a textbook Dividend King, but its reliable monthly payouts and improving financials make…

Read more »

path road success business
Dividend Stocks

How to Invest $50,000 of Tax-Free Cash as Canada-US Trade Uncertainty Escalates

Few Canadian stocks are as easy a choice as this one, making it perfect during volatile periods.

Read more »

monthly desk calendar
Dividend Stocks

How I’d Generate $200 in Monthly Income With a $7,000 Investment

Want to establish $200 in monthly income (or even more?) Here's an easy way to start today that will provide…

Read more »

Printing canadian dollar bills on a print machine
Dividend Stocks

Got $25,000? Turn it Into $250,000 in a TFSA as the Canadian Dollar Rises

Investing doesn't have to be risky or difficult, especially with this top stock.

Read more »

A woman shops in a grocery store while pushing a stroller with a child
Dividend Stocks

Where Will Loblaw Be in 3 Years?

Loblaw (TSX:L) stock could be a stellar performer as tariffs and headwinds move in on Canada's economy.

Read more »

customer uses bank ATM
Dividend Stocks

Where Will National Bank Be in 5 Years?

National Bank of Canada (TSX:NA) stock still looks like a great deal at these levels.

Read more »