Once every few years, investors get a chance to buy high-yield dividend stocks that trade at a massive discount, allowing them to benefit from a passive-income stream and long-term capital gains. The ongoing volatility in the equity markets has dragged valuations of dividend stocks across sectors lower in the past 18 months, making the time ripe to go bottom fishing.
Moreover, the threat of an upcoming recession might drive the valuations of these stocks even lower. I believe a once-in-a-decade opportunity is on the horizon, and some quality TSX income stocks provide significant upside from current levels. Here are two top dividend stocks that remain solid investments right now.
Top income stocks to buy: Exchange Income
One of the top-performing TSX stocks, Exchange Income (TSX:EIF) has returned 353% in dividend-adjusted gains to shareholders in the past decade. Despite these market-thumping gains, Exchange Income is down 20% from all-time highs, increasing its dividend yield to 5.6%.
Exchange Income operates in the aerospace and aviation services and equipment businesses. Valued at $2 billion by market cap, EIF stock is priced at 13.5 times forward earnings, which is very cheap. Comparatively, analysts expect the TSX stock to increase its adjusted earnings by 11.4% annually in the next five years.
Over the years, Exchange Income has targeted highly accretive acquisitions, allowing it to grow revenue and earnings at an enviable pace. Despite a challenging macro environment, Exchange Income reported record revenue of $627 million in the second quarter (Q2) with an adjusted EBITDA (earnings before interest, tax, depreciation and amortization) of $147 million.
Exchange Income ended Q2 with a free cash flow of $98 million and paid shareholders a dividend of $0.63 per share, indicating a payout ratio of just 30%, providing it with enough flexibility to invest in growth projects, increase dividends higher, and strengthen its balance sheet.
Due to its compelling valuation, Exchange Income trades at a discount of 50% to consensus price target estimates.
Dream Industrial REIT stock
Shares of real estate investment trusts, or REITs, are trailing the broader markets as investors are wary of investing in debt-heavy companies amid interest rate hikes. Shares of Dream Industrial REIT (TSX:DIR.UN) are down 29% from all-time highs, increasing its yield to 5.5%.
Dream Industrial owns a portfolio of high-quality industrial properties in Canada. It ended Q2 with 321 industrial properties totalling 70.3 million square feet of gross leasable area in key Canadian markets.
Valued at $3.5 billion by market cap, Dream Industrial ended the June quarter with $7.8 billion in total assets. It reported funds from operations per unit of $0.25 in Q2, an increase of 14% year over year. Comparatively, it paid shareholders a dividend of $0.174 in Q2, indicating a payout ratio of 69.6%.
Dream Industrial recently raised $52 million through an ATM (at-the-market) program and used the proceeds to repay debt, resulting in lower interest expenses and higher cash flows. The REIT emphasized it has the flexibility to fund strategic acquisitions as well as partner in private market joint ventures.
Analysts remain bullish on the REIT and expect shares to gain 37% in the next 12 months.