Finding dividend stocks that trade at excellent valuations is what long-term investors should be focused on. Those looking to create passive-income streams in retirement but still care about capital appreciation can benefit most from owning undervalued dividend-paying companies.
Of course, creating a list of the best such stocks to buy in any market environment can be challenging. However, the good news is that the TSX is full of such companies, and I’m building my watch list of undervalued dividend stocks right now.
There are three names I’ve got on my radar that investors may want to dive into: SmartCentres REIT (TSX:SRU.UN), Dream Industrial REIT (TSX:DIR.UN), and Fortis (TSX:FTS).
Here’s why.
SmartCentres REIT
For investors seeking monthly income, SmartCentres REIT is a top choice. SmartCentres is among Canada’s largest and most popular real estate investment trusts (REITs), with a top-notch, mixed-use portfolio. It owns 191 properties in diverse communities across Canada. Furthermore, SmartCentres has approximately 35 million square feet of first-class retail and office properties.
Despite a rough patch in its previous years of operation, SmartCentres REIT is soaring again. The investment trust reported strong third-quarter (Q3) fiscal year 23 results with high growth in rental income, occupancy level, and the number of completed projects. After the announcement, SRU.UN share prices rose 14% almost two weeks ago.
According to its financial report, SmartCentre’s leasing activities with shopping centres have improved. This led to an increase in industry-leading occupancy rate to 98.2%. The net rental income of this company increased by US$4.6 million or 3.7% in Q2 of 2023 from the same quarter of the previous year.
These factors prove SmartCentres can generate regular dividends and steady cash flow, making it a favourite choice for dividend investors.
Dream Industrial REIT
Dream Industrial REIT is an open-ended and unincorporated real estate investment trust. Like SmartCentres, Dream’s portfolio of real estate assets is impressive. Focusing on the industrial sector (warehouses and distribution centres mostly), Dream Industrial’s portfolio includes 322 industrial assets, as of September 2023. These assets cover an aggregate of 70.6 million square feet of gross leasable area in markets across Canada, the U.S., and Europe.
As per the company’s report, it generated a 17.4% increase in net rental income and a 7.9% increase in total assets. Its diluted funds from operation rose by 10.4% in Q3 FY23 to US$0.25 per unit. Dream Industrial REIT has also provided investors with a dividend yield of 5.6% over the year.
Fortis
Fortis is an electric and gas utility company operating in Canada, the U.S., and the Caribbean. The company also distributes wholesale electricity in western United States regions.
Analysts consider Fortis stock an excellent option for investors looking to create a passive-income stream via dividends. Notably, Fortis boasts an impressive dividend growth track record, raising its dividend distribution for 50 consecutive years. Moreover, Fortis envisions its annual dividend to grow at a CAGR of 4-6% through 2028.
As per its financial reports, this company’s growing earning base, base growth, and predictable cash flow can help it offer more dividends in upcoming years.
Bottom line
With the information above, one can conclude that despite the prevailing bearish market, SmartCentres REIT, Dream Industrial REIT, and Fortis are three stocks that are poised to continue to perform well in the years to come. These companies’ financial metrics have been proven over time, and analysts believe that they are among the best dividend-paying stocks. I tend to agree.
