2 Absolutely Cheap Canadian Dividend Stocks to Buy in September 2022

Low-risk investors seeking income or total returns should consider these absolutely undervalued dividend stocks.

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You can identify cheap stocks from their low price-to-earnings ratios (P/E). Low P/E stocks that pay out safe dividends can be a fantastic combination for investors, because it means locking in passive income streams on sale!

Here are a couple of absolutely cheap dividend stocks that could be great buys in September 2022.

Great-West Lifeco for a 6.3% dividend yield

Great-West Lifeco (TSX:GWO) and other life and health insurance stocks tend to trade at low P/E ratios. As a result, their dividend yields are also attractive for income investors and total-return investors who are looking for that stable return from dividends.

In particular, at $30.92 per share at writing, GWO stock trades at about 8.7 times earnings. The selloff of 25% from its 52-week and all-time high has pushed up its yield for a compelling annualized dividend of 6.3%.

It’s not like you get no growth from the business either. For reference, in the past 10 years, its earnings per share (EPS) have increased by 5.8% annually. There were some years of slow growth or small setbacks and other years of high growth, but generally, through the decade, its earnings have been stable and growing.

This time-tested dividend stock is also a Canadian Dividend Aristocrat. Its 10-year dividend-growth rate is 3.9%, as the insurance stock maintained the same dividend from 2009 to 2014. After last increasing its dividend by 11.9% in November 2021, its payout ratio sits sustainably at about 55%. Its five-year dividend-growth rate of 5.4% is a better indication of its longer-term dividend-growth rate going forward.

All told, the undervalued stock is a good consideration for low-risk investors looking for stable returns. Assuming a 5% EPS growth rate and no valuation expansion, long-term investors could pocket annual returns of about 11%.

Another absolutely cheap dividend stock for a high yield

The big Canadian banks have an even longer history of paying dividends. Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) stock, in particular, has paid dividends every single year since 1833. It could be a great addition to your passive-income portfolio right now.

In their quarterly earnings in August, the Canadian banks gave the notion that the economy could weaken. News has been swirling that high inflation combined with interest rates rising too much too fast could trigger a recession. This less-optimistic outlook has weighed on the banks’ results in the near term.

BNS stock is 23% lower from its 52-week and all-time high. At $72.91 per share at writing, it trades at a P/E of about 8.7 and offers a yield that’s approaching 5.7%! That’s the most massive dividend available from the Big Six Canadian bank stocks.

Additionally, you will get stable growth, in the long run, from BNS stock. For reference, in the past decade, its EPS has increased by 5.3% annually. It’s only around recessionary periods where the bank stock experiences setbacks in its earnings.

Overall, Scotiabank’s dividend is safe with a payout ratio set up to be about 48% this year. Assuming a 5% EPS growth rate and no valuation expansion, long-term investors could pocket annual returns of close to 11%.

Because the two TSX stocks are absolutely cheap, it’s more likely that they could exceed total returns of 11% per year over the next three to five years.

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 Kay Ng has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

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