3 Cheap Stocks to Buy Now for High Potential Returns

Here are three fabulous dividend stocks that seem cheap. Investors looking for a great deal should explore the ideas immediately!

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For investors, safety of principal, perhaps, is even more important than striving for high returns. After all, you need to keep your original investments safe to make more money from your money. Here are a few solid stocks that appear to be cheap and have outsized total returns potential over the next three to five years.

Manulife stock

Manulife (TSX:MFC) stock appears to be under a spell of continued cheapness. Since 2018, the life and health insurance company’s earnings have more than recovered to higher levels. Yet the stock remains very depressed.

At $25.39 per share at writing, the solid company trades at about 7.9 times this year’s estimated earnings. Its expected earnings-per-share growth rate of about 7.4% over the next three to five years. So, it has a very palatable PEG (price-to-earnings-to-growth) ratio of 1.07.

Let’s not forget that the A-grade S&P credit rating company also offers a juicy dividend yield of about 5.75%. Its payout ratio is estimated to be sustainable at roughly 45%. Manulife stock has a track record of increasing its dividend by approximately nine consecutive years. For reference, its 10-year dividend-growth rate of 9.8% is pretty awesome.

TD Bank stock

Toronto-Dominion Bank (TSX:TD) is another stock in the financial services industry that’s also undervalued. It’s clearly on sale after the banking shakeup selloff. At $81.31 per share at writing, the top Canadian bank stock trades at about 9.5 times earnings. This is a discount of roughly 19% from its long-term normal valuation.

The bank remains highly profitable, bringing in multi-billions of dollars in profits every year. Its dividend is also reliable and growing over time. At writing, it offers a decent yield of 4.7%. TD stock managed to increase its dividend by 8.4% per year over the last 15 years. It’s an excellent opportunity to accumulate TD stock on the cheap right now.

goeasy stock

The current environment of higher interest rates versus the last decade doesn’t bode well for non-prime consumer lender goeasy (TSX:GSY). It makes its loan portfolio potentially riskier. Additionally, the federal government is capping the maximum allowable interest rate at 35% for the industry. On the positive side, the goeasy chief executive officer noted that the company has been bringing down its average interest rate over time, as it has grown its scale anyway.

Therefore, the new regulation has a lesser impact on goeasy’s business versus its smaller peers. An expected recession in Canada this year has put additional pressure on the stock. This is why it currently trades at a lower valuation to its historical levels.

Specifically, at $96.12 per share at writing, it trades at a discount of about 20%. The stock could be an incredible winner through an economic expansionary period. While you wait for that to occur, it offers a good dividend yield of 4%. For reference, its trailing 12-month payout ratio was sustainable at about 37% of net income.

Investor takeaway

Investors must have patience to allow time for stocks’ underlying businesses to grow or navigate hardships. Currently, all three of these dividend stocks seem to be cheap. The group has a good chance of outperforming the market over the next three to five years while paying growing dividend income for their shareholders.

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 positions in goeasy and Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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