Several dividend stocks trading on the TSX pay an attractive yield to investors. As dividend payments are not guaranteed, it’s essential to identify companies with strong fundamentals, allowing them to maintain and even increase those payouts across market cycles.
Moreover, you can benefit from capital gains over time with the best dividend stocks. In addition to a tasty yield, it makes sense to buy stocks trading at a cheap multiple.
Here are two such undervalued TSX dividend stocks with a high forward yield.
Aecon Group stock
One of the leading infrastructure companies in Canada, Aecon Group (TSX:ARE) offers you a dividend yield of over 5.5%. It ended 2022 with a robust development pipeline of public and private opportunities, making Aecon a partner of choice for major projects across Canada.
Its low-risk portfolio and strong recurring revenue base enable Aecon to pay shareholders an annual dividend of $0.74 per share. These payouts have increased by 9% annually in the last 10 years.
Analysts tracking Aecon stock expect the company to increase adjusted earnings from $0.47 per share in 2022 to $1.12 per share in fiscal 2024. Priced at 11 times forward earnings, the TSX stock is trading at a discount of 20% to consensus price target estimates.
Aecon ended Q1 of 2023 with a backlog of $6 billion, providing investors with revenue visibility. It also pursued seven acquisitions in the energy transition space last year. Around 60% of its sales were tied to sustainability projects in 2022.
Aecon Group has showcased its ability to develop, construct, finance, and operate diverse infrastructure projects. These projects provide the company with long-term cash flow with the opportunities to monetize future development projects. Additionally, it is focused on energy transition and decarbonization projects where Aecon is positioned to benefit from concessions.
Bank of Nova Scotia stock
One of the largest banks in North America, Bank of Nova Scotia (TSX:BNS) offers shareholders a dividend yield of 6.4%. The banking crisis in the U.S. and interest rate hikes have driven BNS stock lower by 30% from all-time highs.
BNS does not have significant exposure to the U.S. and generates over 40% of total earnings from Canada. It is also gaining traction in emerging Latin American markets such as Chile, Peru, and Mexico.
While most banks south of the border suspended or cut dividend payments during the financial crisis in 2009, BNS maintained these payouts showcasing the resiliency of its business model.
The Canadian banking sector is highly regulated, enabling BNS and other big banks to benefit from entrenched positions. These regulations also allow BNS to maintain enough liquidity to tide over volatile economic cycles.
In fiscal Q2 of 2023 (ended in April), BNS reported a net income of $2.2 billion or $1.70 per share. Due to a challenging macro environment, its average return on equity fell to 12.4% from 16.4% in the year-ago period.
But the company still increased quarterly dividends by $0.03 cents to $1.06 per share. Its dividend payouts have risen by 5.6% annually in the last 15 years.
BNS continues to build its liquidity position with double-digit year-over-year customer deposit growth, which outpaced loan growth in Q2. Its liquidity coverage ratio more than doubled to 131% at the end of Q2.
