If you want cheap dividend stocks, now is the time to look. Rising interest rates have been a headwind for many dividend-paying stocks.
This is because lower-risk alternatives like bonds and GICs (guaranteed investment certificates) become more attractive when rates are higher. Investors tend to abandon riskier assets for lower risk assets if the returns are projected to be similar. Likewise, many dividend-paying stocks are financed with a lot of debt, which is putting pressure on their earnings and capability to pay dividends.
Fortunately, the market doesn’t always get it right and patient investors can grab some bargains while sentiment shifts. With that in mind, here’s three cheap dividend stocks to consider buying right now.
A utility and midstream stock at a bargain
AltaGas (TSX:ALA) stock is down around 2% this year and 24% over the past year. Today, it pays a 4.97% dividend yield. AltaGas has two major businesses: A midstream natural gas processing and export business in Canada, and a regulated utility business in the United States.
AltaGas has been working on a turnaround strategy for several years. It has sold off non-core assets and is working to reduce its debt burdens. While this stock has some risk, ALA also has opportunities at this price. The company has higher-than-average growth in its utility business, and it could also be a big beneficiary of further natural gas and LNG development in Western Canada.
Right now, this dividend stock is cheap. With a price-to-earnings (P/E) ratio of 11.7 times, AltaGas trades at a ~20% discount to its energy infrastructure peers and a 40% discount to its gas utility peers.
A top bank stock with an above-average dividend
Toronto-Dominion Bank (TSX:TD) is another dividend stock with a bit of risk, but also potential upside. Its stock is down 7% in 2023 and 13% over the past 52-weeks. Today, it trades with a 4.7% dividend yield, which is close to the highest it has been since 2021. With a P/E of nine, it is trading well below its five-year average of 11.
Short sellers have been betting that TD’s outsized U.S. exposure could come to haunt it. There are worries that its stake in Charles Schwab could be at risk.
Yet, overall, the company is very well diversified, and it has one of the best capital ratios in North America. Bank stocks are complex, but if you don’t mind the risks, this could be an opportunity.
A huge discount for a high-end REIT
Another great place to look for bargain dividend stocks is real estate. One of the best bargains in Canada actually has all its properties in the United States. BSR Real Estate Investment Trust (TSX:HOM.U) owns 31 garden-style multi-family communities in Oklahoma, Arkansas, and Texas.
Unlike in Canada, these jurisdictions have no rent control, so the REIT can grow rents based on market dynamics. Its properties are in some of America’s fasting growing regions. Last year, BSR saw its weighted average rental rate increase by 11%! Likewise, adjusted funds from operation (AFFO) per unit (its core metric of profitability) rose by 35%!
BSR has one of the newest multi-family portfolios amongst peers. Yet, investors can buy this stock on the TSX at ~60% of its private market value. Investors can collect an attractive 4% distribution while they wait for the stock price to align closer with BSR’s true value.
