New investors will find it exhilarating to make their first stock investments. Should they invest in nice dividend stocks, I’m sure they’ll enjoy receiving regular dividend income. As the market correction progresses, new investors will find buying opportunities in the following Canadian dividend stocks that are already getting cheap and still churning out safe, juicy dividends.
Bank of Nova Scotia stock
The first dividend stock I’m introducing is Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) stock. As the third-largest Canadian bank by assets, it enjoys operating in an oligopoly environment in the country, along with five other big bank peers taking the lion’s share and serving most of the Canadian population. It’s the most international bank in Canada, as it has more than 40% of its operations predominantly in geographies such as Chile, Mexico, and Peru.
Its international exposure is a differentiator that could potentially experience higher growth in developing markets. However, these markets are also perceived to be higher-risk in nature, which is why BNS stock tends to trade at a small discount to its peers. The history may be telling. In the past 10 years, the bank increased its earnings per share at a compound annual growth rate of 5.3%. Currently, the bank stock trades at a discount of 15% from its long-term normal price-to-earnings ratio.
Assuming a 5% earnings-growth rate and a 5% dividend yield, investors today can earn a long-term return of about 10% from the stable bank. Valuation expansion can further add another +3% rate of return over the next five years for returns potential of +13% per year.
Sun Life Financial stock
Sun Life (TSX: SLF)(NYSE: SLF) stock has turned a new leaf since the global financial crisis of 2007-2009. Specifically, since 2012, its earnings have remained highly stable and persistently growing. From 2012 to 2021, it boosted its earnings per share by almost 8.8% per year. This aligns with management’s medium-term earnings-per-share growth rate objective of 8-10%.
Being conservative by assuming the low end of 8% for its earnings-per-share growth rate, combined with its safe dividend yield of almost 4.5%, SLF stock buyers today can generate long-term returns of about 12.5% per year. The stock is undervalued by about 14% from its long-term normal valuation. If a valuation expansion occurs as well, investors can earn an extra +3% per year over the next five years.
Sun Life stock’s payout ratio is projected to be about 45% this year, which sits nicely in the middle of its payout ratio target range of 40-50%.
Restaurant Brands International stock
The last stock I’m introducing, Restaurant Brands International (TSX: QSR)(NYSE: QSR), also offers a rich dividend — a yield of almost 4.3%. Pressure from rising wages, higher transportation costs, and higher raw material prices don’t bode well for the quick-service restaurant chain, but it will probably be able to pass at least some of the costs to its customers.
Importantly, due to its franchise business model, it remains, nonetheless, a cash cow. In the last 12 months, it generated almost US$1.7 billion of cash flows from operating activities, which translated to almost US$1.6 billion of free cash flow thanks to having low capital spending. Its payout ratio was approximately 61% of its free cash flow.
Analysts think the undervalued stock is discounted by about 21%, which can meaningfully boost total returns over the long term in addition to the secure dividend income.
