1 Oversold Dividend Stock (With a 3.5% Yield) to Buy in March 2023

Sleep Country Canada stock is down 40% from all-time highs and offers investors a tasty dividend yield of 3.5% right now.

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With the equity markets expected to remain volatile and rangebound in 2023, investors might be wary of increasing exposure to stocks. But historically, this asset class has consistently outpaced inflation across market cycles while delivering outsized gains to investors over time.

Further, the sell-off in the last 12 months provides Canadians an opportunity to identify oversold dividend stocks and buy them at a discount. The yields of these oversold TSX stocks will also be attractive to the income investor.

Here is one such TSX dividend stock you can buy in March 2023.

Sleep Country Canada stock

Sleep Country Canada (TSX:ZZZ) is among the largest specialty sleep retailers in Canada. The company has 289 corporate-owned stores and 17 Sleep Country Express stores, as well as its e-commerce platform.

It offers the largest domestic and imported selection of mattresses and other sleep-related products in Canada. Brands such as Sleep Country Canada and Dormez-vous are quite popular in the Canadian retail landscape. The company generated sales of $928.6 million in 2022, compared to $712.4 million in 2019.

Sleep Country Canada is also gaining traction in its online sales segment with retail banners such as Endy and Hush. Endy was launched as a mattress-in-a-box product in 2015 and soon became Canada’s leading direct-to-consumer sleep solution offering.

Sleep Country also acquired a 52% stake in Hush Blankets in Q4 of 2021, which is an online sleep retailer. The remaining stake will be acquired over a three-year period starting this April.

This year, Sleep Country Canada acquired all operating assets of Silk & Snow Inc., a digital sleep retailer, which should drive inorganic growth higher in 2023.

How has ZZZ stock performed since its IPO?

Sleep Country Canada stock went public in mid-2015 and has since returned 81% to investors in dividend-adjusted gains. Comparatively, the TSX index is up 76% in this period.

Down 40% from all-time highs, ZZZ stock is currently valued at a market cap of $836 million. Bay Street expects the company’s sales to increase from $928.7 million in 2022 to $960 million in 2024. Its adjusted earnings are forecast to touch $2.88 per share in 2024.

So ZZZ stock is priced at 0.85 times forward sales and 8.5 times forward earnings, which is quite reasonable given its tasty dividend yield of 3.5%. The retail company has increased its dividends by 7.5% annually since 2016.

What next for Sleep Country Canada stock?

Sleep Country Canada aims to support its profitable growth strategy and maintain its position as a leading provider of Sleep products. Looking forward, management plans to continue to make investments to increase digital capabilities and improve customer retention rates by investing in elevated in-store experiences.

The company will open at least six new stores this year and renovate between 20 to 30 stores in 2023. It will consolidate four of its warehouses into two new ones, improving operational efficiencies.

Analysts tracking ZZZ stock remain bullish and expect it to surge around 12% in the next year. After accounting for its dividend yield, total returns will be close to 15%.

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 Aditya Raghunath 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.

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