Buying cheap or undervalued dividend stocks is a proven strategy to build long-term wealth. Here, investors can benefit from a high dividend yield as well as capital gains when the equity markets stage a rebound.
While dividend payouts are not guaranteed, fundamentally strong companies generally maintain these payments across market cycles and consistently increase dividends, allowing shareholders to benefit from a higher effective yield over time.
Here are three such cheap TSX dividend stocks you can consider buying today.
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Enerflex stock
An energy infrastructure company, Enerflex (TSX: EFX) pays shareholders an annual dividend of $0.10 per share, indicating a yield of 1.3%. The company has two business segments, which include Energy Infrastructure and After-Market Services, that help it earn recurring revenue, resulting in predictable cash flows.
Its Engineered Systems business also booked $322 million in new orders in the second quarter (Q2), including multiple energy-transition-based initiatives, ending the quarter with a backlog of $1.4 billion.
Moreover, the company’s acquisition of Exterran will help Enerflex increase revenue by 76.8% to $3.14 billion in 2023. Its enviable top-line growth will enable Enerflex to improve profit margins significantly. Analysts expect adjusted earnings per share of $0.42 in 2023 compared to a loss of $1.04 per share in 2022. Enerflex is forecast to end 2024 with adjusted earnings of $1.03 per share.
Priced at less than eight times forward earnings, EFX stock trades at a discount of 60% to consensus price target estimates.
Exchange Income stock
One of the top-performing stocks on the TSX in the past two decades, Exchange Income (TSX: EIF) has returned 2,600% to investors since September 2003. Despite its outsized gains, EIF stock currently offers a tasty dividend yield of 5.4%.
Exchange Income is a diversified, acquisition-oriented company focused on opportunities in verticals such as aviation and aerospace, as well as manufacturing.
Exchange Income increased revenue by 19% year over year to $627 million while adjusted earnings before interest, taxes, depreciation, and amortization grew 28% to $147 million in Q2 of 2023. Its free cash flow was up 12% at $98 million, indicating a dividend-payout ratio of 57%, which is quite sustainable.
Down 16% from all-time highs, EIF stock trades at 15 times forward earnings, which is quite cheap. Analysts expect the TSX stock to surge close to 50% in the next 12 months.
Linamar stock
The final undervalued TSX stock on my list is Linamar (TSX: LNR), an automobile ancillary company. Despite a sluggish macro environment, Linamar increased sales by 28.8% to $2.55 billion and earnings by 55.4%.
Linamar emphasized its diversified strategy has been validated as industrial earnings tripled year over year in Q2, driving overall sales higher. Additionally, new business wins have meant Linamar ended the June quarter with an order book of $4.5 billion.
Industrial sales grew by 54% in Q2 due to agricultural and access equipment, while mobility revenue grew by 20%.
Linamar is forecast to improve earnings from $6.26 per share in 2022 to $9.81 per share in 2024. Priced at seven times forward earnings, LNR stock trades at a discount of 30% to consensus price target estimates.
