2 Cheap Dividend Stocks to Boost Your Passive Income

TSX dividend stocks such as Killam REIT offer shareholders a generous yield and trades significantly below consensus price estimates.

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Cheap dividend stocks generally offer you a higher yield and the opportunity to benefit from long-term capital gains. As dividend yields and share prices are inversely related, investors need to identify fundamentally strong stocks trading at a discount.

While these payouts are not guaranteed, the best dividend-paying companies generate cash flows across market cycles, allowing them to raise dividends at a consistent pace, which increases your effective yield over time. Here are two cheap dividend stocks you can buy to boost your passive income.

Killam Apartment REIT stock

Valued at a market cap of $2 billion, Killam Apartment REIT (TSX:KMP.UN) currently offers you a tasty dividend yield of 4.1%. The real estate investment trust (REIT) currently trades 28% below all-time highs as investors are wary of recent interest rate hikes and a sluggish macro environment.

Killam owns 275 properties, which include 226 apartments, 40 MHCs, or manufactured home communities, and nine commercial properties. It is among the largest residential REITs in Canada, with a portfolio of 19,152 apartment units and 5,975 MHC units.

The company owns and manages residential apartments in large Canadian cities across provinces such as Atlantic Canada, Alberta, Ontario, and British Columbia.

Killam generates 90% of its net operating income from apartments, while 5% originates from MHCs and 5% from commercial properties.

In the second quarter (Q2) of 2023, Killam reported funds from operations, or FFO, per unit of $0.30, an increase of 7.1% year over year. It completed dispositions worth $72.2 million as Killam aims to sell non-core assets totaling $100 million and exceed its capital-recycling target in 2023.

The funds originating from the sale of these assets would be used to increase its capital flexibility and strengthen its balance sheet. Despite elevated interest rates, Killam’s debt-to-assets ratio stood at just 43%, which is the lowest in the company’s history.

Killam reported a net income of $114.5 million in Q2, an increase of $45.8 million compared to the year-ago period. Its net operating income rose 8.8% to $56.2 million, while adjusted funds from operations increased 8.3% to $0.26 per share. This indicates Killam Apartment has a payout ratio of less than 67%, which is quite sustainable.

In addition to its dividend yield, Killam stock also trades at a discount of 27.4% to consensus price target estimates.

Algonquin Power & Utilities stock

Down 65% from all-time highs, Algonquin Power & Utilities (TSX:AQN) currently offers you a dividend yield of 7.5%. During its Q2 earnings call, Algonquin Power & Utilities announced its intention to sell its renewables business, which accounts for over 30% of adjusted EBITDA (earnings before interest, tax, depreciation, and amortization).

According to AQN, it wants to focus on its regulated business, which is well-diversified and enjoys stable cash flows. In the last 20 years, Algonquin has expanded its utility platform by acquiring and investing in undervalued and underperforming assets. It now serves 1.2 million customer connections with a rate base of $7 billion.

AQN’s property is heavily concentrated in four U.S. states, which include Missouri, California, New Hampshire, and New York. These states account for 73% of AQN’s total rate base.

Moreover, electric and water distribution accounts for 78% of the total rate base, followed by natural gas distribution at 22%.

Analysts remain bullish and expect AQN stock to surge over 50% in the next 12 months.

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 Aditya Raghunath has positions in Algonquin Power & Utilities. The Motley Fool has positions in and recommends Killam Apartment REIT. The Motley Fool has a disclosure policy.

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