2 Oversold TSX Stocks to Buy for Passive Income

Beaten-down stocks like Suncor Energy Inc (TSX:SU)(NYSE:SU) offer high dividend income.

| More on:
data analyze research

Image source: Getty Images

Looking to establish passive income with dividend stocks?

If so, it helps to look at oversold stocks.

Oversold stocks are stocks that have been beaten down severely in the market, leading traders to expect them to bounce. Strictly speaking, the use of the term oversold isn’t always accurate, as stocks that have been sold off harshly can sometimes go even lower. Nevertheless, when it comes to dividend stocks, those that are deemed oversold often have high yields, because a lower stock price drives the yield higher, all other things the same.

That doesn’t mean you should just rush out and buy any old dividend stock that has been beaten down in the markets. To the contrary, you need to be sure that the stock really is “oversold” and not justifiably sold. In this article, I will explore two Canadian dividend stocks that appear to be oversold given their recent price momentum and fundamentals.


Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is a Canadian bank stock with a 5.24% dividend yield. Down 11.4% this year, there’s a strong case to be made that it is oversold. In its most recent quarter, CIBC delivered

  • $1.66 billion in net income, down 4%;
  • A 15.1% return on equity, nearly unchanged from the prior year;
  • $2.465 billion in pre-provision earnings (see explanation below), up 10%; and
  • $1.78 in earnings per share (EPS), down 5%.

Some of the terms above may sound complex, so to explain briefly:

  • Return on equity is a profitability measure. It means net income divided by equity. Equity itself is assets minus liabilities.
  • Pre-provision earnings means earnings without provisions for credit losses (PCLs). PCLs are money banks have to set aside for loans that might go bad.
  • EPS is earnings divided by number of shares outstanding.

Basically, what all of the above bullet points mean is that CIBC’s profit grew 10% in the last quarter if you exclude PCLs. Higher PCLs simply mean that the bank thinks its loans are getting riskier, it’s not a cash cost. In the future, when the economy starts expanding, CIBC will be able to reverse its PCL buildup, which could cause earnings to rise. If that happens, then CM stock will look to have been oversold at today’s prices.

Suncor Energy

Suncor Energy (TSX:SU)(NYSE:SU) is a Canadian oil stock that has been beaten down severely in recent months. Like most Canadian oil stocks, it rallied in the first half of the year. Also like most Canadian oil stocks, it fell dramatically in the second half. Oil prices began falling in June, so it’s no surprise that oil companies in general showed weakness.

What is interesting is just how much cheaper Suncor has gotten compared to other oil stocks. At today’s prices, SU trades at just 6.4 times earnings and 3.8 times operating cash flow. The same metrics for most other oil companies are much higher, so we’ve possibly got a true oversold value stock on our hands here.

The bottom line

The bottom line is, if you’re looking for passive income, it pays to buy low. Technically, that’s true with all stocks, but it’s especially true with dividend stocks, for which the yield grows ever higher as the price goes down.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

Arrowings ascending on a chalkboard

I Think They Can: 3 Stocks That Can Keep Chugging Higher

CN Rail (TSX:CNR) and other transport plays have what it takes to chug even higher from here!

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

Better Buy: Dollarama Stock or Alimentation Couche-Tard?

Take a closer look at these two defensive retail stocks to determine which might be a better holding to protect…

Read more »

Growing plant shoots on coins
Dividend Stocks

TFSA Dividend Stocks: How You Can Earn $400 Per Month of Growing Passive Income

Here's how you can buy top Canadian dividend stocks in your TFSA to build a rapidly and consistently growing passive-income…

Read more »

top TSX stocks to buy
Dividend Stocks

GICs vs. Dividend Stocks: Where to Invest for Passive Income in 2024?

Income-seeking investors can consider holding instruments such as GICs and dividend stocks to create a recurring revenue stream.

Read more »

Dollar symbol and Canadian flag on keyboard

If You Don’t Own This Canadian Stalwart Stock, You’re Missing Some Serious Stability

Here's why Royal Bank of Canada (TSX:RY) remains a stalwart long-term investors have done well to make a core holding.

Read more »

Payday ringed on a calendar
Dividend Stocks

Got $10,000 to Invest? How to Turn it Into Monthly Income

Canadians can produce recurring monthly income streams from a $10,000 investment in two high-yield real estate stocks.

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

How to Build a Bulletproof Dividend Portfolio Starting With Just $10,000

Want to earn a growing stream of dividend income? Here's how to invest $10,000 for a great combination of income…

Read more »

Wireless technology
Tech Stocks

Got $5,000? 2 Tech Stocks to Buy and Hold for the Long Term

Here are the best tech stocks to buy, with one offering long-term growth and the other offering strong business as…

Read more »