Most investors generally buy dividend stocks to earn passive income. But in addition to creating an alternative income stream, dividend stocks also generate returns via capital gains in the long term.
The double bounty of regular dividends and stock price appreciation can help you generate market-thumping returns consistently. Moreover, if a company can increase its earnings and dividend payments each year, total returns can easily snowball over time and help investors benefit from the powers of compounding.
Here are two such cheap or undervalued TSX dividend stocks you can buy in March 2023.
Total Energy Services stock
A Calgary-based company, Total Energy Services (TSX:TOT) offers a wide portfolio of products and services to companies part of the energy sector. It is involved in contract drilling, rental & transportation of drilling equipment, production of oil & natural gas wells, and rental & servicing of these types of equipment.
In the last three quarters, Total Energy Services increased sales to $548.3 million, up from $297 million in the year-ago period. Its cash flow per share increased from $1.29 per share to $2.14 per share in this period.
Total Energy paid shareholders a quarterly dividend of $0.06 per share in December 2022 and recorded a cash flow of $0.95 per share, indicating its payouts are quite sustainable. Given its annual dividend of $0.24 per share, Total Energy stock offers investors a forward yield of 2.7%.
Total Energy Services has allocated $25.6 million towards growth capital expenditures, which should drive future cash flows higher and enable dividend hikes in 2023 and beyond.
TOT stock is priced at less than 0.4 times 2023 sales and six times forward earnings, which is quite cheap. Bay Street analysts tracking the TSX stock expect share prices to almost double in the next 12 months.
Cascades stock
Another cheap TSX dividend stock that you can consider is Cascades (TSX:CAS), a paper and packaging company that manufactures and sells packaging and tissue products made from recycled fibres. It operates 80 facilities across Canada and the United States. Valued at 0.25 times forward sales, it also offers investors a generous dividend yield of 4.3%.
One major factor for concern is Cascades is a volume-driven company with very low profit margins. In 2022, Cascades reported sales of $4.46 billion, but its operating profit stood at just $33 million, indicating a margin of just 0.74%.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Total Energy Services | $8.90 | 562 | $0.06 | $33.72 | Quarterly |
| Cascades | $11.32 | 442 | $0.12 | $53.04 | Quarterly |
After navigating a challenging macro-environment in 2022, analysts expect Cascades to improve earnings to $1.08 per share in 2024, compared to earnings of $0.37 per share in the last year.
So, the TSX stock is priced at 10 times forward earnings, but its bottom line may expand by 37% annually in the next five years.
In 2022, Cascades allocated $542 million towards capital expenditures, which should increase its cash flows in the future and support higher dividend payments. It also forecast to invest $325 million in capital expenditures this year.
The Foolish takeaway
An investment of $5,000 in each of these two TSX stocks will help you earn $350 in annual dividend income. If the companies increase dividends by 7% annually, your payout should double in the next decade.
