3 TSX Dividend Stocks to Buy Before the Discount Runs Out

Many attractively discounted dividend stocks on the TSX might not remain as attractive when the market becomes bullish enough for a full recovery.

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Dividend stocks appear far more attractive than usual when they are discounted. The yields go up, and the possibility of recovery-fueled capital appreciation makes the prospects of overall returns greener. But it’s essential to pick discounted stocks when they are ripe because if you wait too long, you may lose return potential on both the recovery and yield fronts.

An iron ore company

Unlike gold mining stocks that offer you a hedge against a weak market, iron ore, as well as other base metal mining companies, usually thrive in a strong market and economy. This might be why a company like Labrador Iron Ore Royalty (TSX:LIF) is currently discounted and trading at a price 36% lower than its last peak.

The declining price has pushed the yield up to a juicy 6.3%. If you invest $20,000 in the company, you can expect a monthly income of about $105 with this yield. However, keep in mind that Labrador Iron Ore fluctuates its dividends quite frequently, so you may see the actual payout go up or down in future distributions.

A senior care company

Senior care is a relatively stable business that might see steady growth in the future, considering the growing aging population in Canada. This gives companies like Extendicare (TSX:EXE) more organic growth opportunities. The company and stock can benefit from some growth because it is currently trading at a 27% discount from its post-pandemic peak.

The discount has yet to help with the company’s valuation, and it’s pretty overvalued right now. But it has pushed the yield up to 7.61%. At this rate, you can start earning a passive income of about $126 monthly with just $20,000 invested in the company. Though the number may shrink if the stock begins to recover and the yield goes down.

A non-bank real estate lender

Timbercreek Financial (TSX:TF) offers structured financing solutions (typically short-term) to investors and stakeholders in the commercial real estate sector. This allows it to cater to commercial entities that cannot ask the banks for a loan and offer flexible solutions to commercial entities. So, Timercreek can structure better financial solutions for both itself and its customers.

The benefit of offering short-term loans is that the company quickly sees returns. TF is usually a stable stock, but it has been steadily slumping for a while now. Yet, even though it’s currently offering the smallest discount on this list (19% from its last peak), it has the highest yield. At 8.6%, $20,000 invested in the company might help you generate a monthly income of about $143.

Foolish takeaway

One mid-cap and two small-cap stocks can help you start a decent passive income with about $60,000 in capital. However, the size of the dividend-based income may be less alluring during a bull market when the stocks are not as heavily discounted as they are right now.  

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 Adam Othman 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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