These 2 Cheap Stocks Offer 14.5% Earnings Yields

Stocks with high earnings yield, such as Power Corporation of Canada (TSX:POW), should be on your watch list.

| More on:
Increasing yield

Image source: Getty Images

The dividend yield is a popular metric for investors. However, the earnings yield is often overlooked. This metric is the inverse of the price-to-earnings ratio and offers investors a clue about the company’s earning power. 

A higher earnings yield with a lower dividend yield means the company has more room to reinvest for growth or boost dividends in the future. That’s what makes these stocks attractive. 

With that in mind, here are two relatively cheap stocks that offer earnings yields as high as 10%. 

Power Corp 

Despite its size and influence, Power Corporation of Canada (TSX:POW) tends to fly under the radar of most investors. The stock is deeply underrated and undervalued. 

Power Corp is a financial services conglomerate. The company owns a stake in insurance giant Great-West Lifeco. And its subsidiaries include IGM Financial in Canada and Putnam Investments in America. One of its subsidiaries, Sagard, also has exposure to upcoming FinTech challengers such as Wealthsimple. 

The company generates substantial free cash flow from this diverse portfolio of brands. It generated $2.6 billion in free cash flow in its most recent quarter. Meanwhile, earnings per share was $3.45 over the past 12 months. That implies an earnings yield of 14.5%. Only a portion of that is paid out in dividends, which is why the current dividend yield is just 5.6%.

The earnings and dividend yield have soared, as Power Corp’s stock price dropped. The stock is down 15% year to date and roughly 19% lower than its all-time high from last year. If it rebounds along with the rest of the market, investors could be in for a sizable windfall. 

Investors looking for an undervalued dividend stock should add this to their list. 

Intact Financial

Intact Financial (TSX:IFC) is another undervalued financial services stock. 

As the broader stock market remains under pressure, with the TSX going down 12%, Intact’s valuation is up by more than 10%. Its stellar performance stems from the fact that it is one of the best insurers in the country. In addition, a move by the Bank of Canada to hike interest rates has only strengthened its prospects.

While the company offers an array of insurance products, its core property and casualty insurance products are proving to be safe havens amid the turmoil in the market. The two products are resilient to recession as compared to life insurance products that other insurers rely on

Intact Financial has defied gravity and continued to rise, as other stocks remain under pressure. Over the past 10 years, it has generated significant shareholder value, delivering more than 12% in annualized returns. 

The stock also yields a solid 2.19% dividend yield, which is deceptively low. The earnings yield is much higher at 7.5%. The earnings yield was approaching 10% just two months ago when the stock price was much lower. 

Nevertheless, Intact Financial is an excellent target for investors seeking a conservative value stock in 2022. Keep an eye on it. 

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 INTACT FINANCIAL CORPORATION.

More on Investing

Nickel ore is mined from the ground.

Cameco vs. Barrick Gold: 2 Undervalued Mining Stocks Set to Unearth Gains

Cameco (TSX:CCO) and Barrick Gold (TSX:ABX) are top mining stocks that look to be on sale right here!

Read more »

stock research, analyze data

Could Dollarama Stock Reach $150?

After gaining over 44% in the last 12 months, can Dollarama stock keep up this exceptional growth rate and climb…

Read more »

Tech Stocks

3 Reasons to Buy Shopify Stock Like There’s No Tomorrow 

Shopify stock fell 25% after reporting disappointing guidance. Should investors buy the dip and hold the stock for the long…

Read more »

grow dividends
Dividend Stocks

3 Canadian Stocks With a Real Chance of Doubling Your TFSA’s Value

Three outperforming Canadian stocks can help TFSA investors double their account balances.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

3 No-Brainer Stocks I’d Buy Right Now Without Hesitation

At any given time, the market may have certain stocks that offer a powerful combination of reliability, potential, valuation, etc.,…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

3 Canadian Growth Stocks I’d Buy Under $30

These under $30 Canadian growth stocks are well-positioned to capitalize on mega trends such as e-commerce, the electrification of vehicles,…

Read more »

Gas pipelines
Stocks for Beginners

3 Reasons to Buy Enbridge Stock Like There’s No Tomorrow

Enbridge (TSX:ENB) is a superb long-term option. Here's why you should buy Enbridge stock right now and hold it for…

Read more »

money cash dividends
Dividend Stocks

This 8.39% Dividend Stock Can Pay $100 Cash Every Month

Consider investing in this monthly dividend stock at current levels to lock in high-yielding monthly distributions to create a good…

Read more »