Dividend-stock underdogs are terrific ways to zig while this market zags. These days, artificial intelligence (AI) and other tech plays are likely to be hogging the headlines. Who can resist the euphoric surge in the broad Nasdaq 100 exchange? Some of the hotter names in the basket have rocketed in recent months, with some names more than doubling up in the process.
Indeed, it’s not hard to imagine a bubble brewing in the tech scene. And though I believe it to be an isolated bubble, I’m just not too comfortable buying a stock after an already sizeable amount of multiple expansion has happened. Expectations and estimates have been inflated. Now, it’s up to companies to show their hand. If it’s not as good as expected, you can bet that a valuation reset could have the potential to be quite painful.
Dividend underdogs for extra yield
In any case, you, as an investor, do not need to react to the mania going on in certain tech companies. If you do not like the prices, you do not need to buy! There’s no shortage of value right now. Just look at the relative underperformance in the TSX and Dow Jones Industrial Average. These indices are barely up on the year! For the bull to really run strong, I believe more than just hot AI stocks will need to begin contributing.
In this piece, we’ll check in on two dividend underdogs that I’d bet could finish the year with a bang. And if stocks tumble again, I view less downside risks relative to the other hot names you’re likely to hear from the talking heads on TV.
Be warned, though; the following names are incredibly unloved and could continue to be for some time.
TC Energy
TC Energy (TSX: TRP) is an underperforming pipeline company that’s been a dud for investors this year, with shares pretty much flat year to date. Over the past year, the stock is down 20%. And, from its peak, it’s down 30%. Undoubtedly, the stock is right back to where it was before the 2021-22 rally. That’s disheartening for investors, especially those who wanted to ride the rebound.
The past performance is ugly, but the future looks bright, especially at these valuations. The stock sports a 6.95% dividend yield. After a recent round of layoffs, the company hopes it can “optimize value.” Though I’m not sure how job cuts will translate to such a goal, I think TRP stock is one of the cheapest dividend payers with a yield near 7%. The stock goes for 33.9 times trailing price to earnings but 12.33 times forward price to earnings.
Indeed, TRP has been a choppy mover, but I find the value and dividend to be too good to pass up. The negative momentum is alarming, but I’d rather catch a falling knife that chase a hot name to a peak.
H&R REIT
H&R REIT (TSX: HR.UN) is another investment that won’t excite anyone but deep-value investors with a ton of patience. Office real estate took a major blow as the pandemic set in. Moving forward, it will not be easy for H&R to cope, as various employers downsize, while many remote workers continue to do their jobs from home.
Fortunately, the company recognized the headwinds facing commercial real estate. It made some moves and reduced the dividend but to no avail. Just over a month ago, the REIT announced some big change in management. The president and head of U.S. residential is out, adding to the uncertainties surrounding the name.
At $10 per share, expectations are extremely low. H&R REIT is unloved and could be a prosperous investment for those looking to get huge value for money. At writing, the distribution yield (not dividend yield!) sits at around 5.88%.
