Investing in cheap dividend stocks can help you benefit from a tasty dividend yield and long-term capital gains. Investors need to identify beaten-down stocks that are fundamentally strong, allowing them to benefit from outsized returns over time.
Here are two such cheap TSX dividend stocks to buy for 2024.
Magna International stock
Valued at $22 billion by market cap, Magna International (TSX: MG) is among the largest companies on the TSX. An auto-ancillary manufacturer, Magna International stock is down 38% from all-time highs, raising its dividend yield to 3.2%.
The company’s top line depends on production levels in North America, Europe, and China. It supplies systems and components to every major OEM (original equipment manufacturer), resulting in a customer mix relative to market trends.
Magna International reported revenue of US$10.7 billion in the third quarter (Q3) of 2023, an increase of 15% year over year. Comparatively, global vehicle production rose 4% year over year in the September quarter.
Its adjusted EBIT (earnings before interest and tax) soared to US$615 million in Q3 from US$452 million in the year-ago period due to operational efficiencies and cost initiatives.
Magna International’s operating cash flows stood at US$797 million, allowing it to reinvest in growth projects and strengthen the balance sheet.
Priced at 8.7 times forward earnings, Magna International stock is very cheap and trades at a discount of 22% to consensus price target estimates. In the last 16 years, the TSX giant has also raised dividends by 12% annually, showcasing the resiliency of its cash flows.
Newmont stock
A gold mining company, Newmont (TSX: NGT) is valued at $65 billion by market cap and pays shareholders a dividend of 3.9%. Earlier this year, Newmont completed the acquisition of Newcrest Mining to create the world’s largest gold company with a sizeable copper production.
The combined entity now owns over half of the world’s tier-one assets. It has an unmatched portfolio of long-life operations, value-accretive projects, and ample exploration opportunities, driving future cash flows and earnings higher.
Further, the acquisition will generate annual pre-tax synergies of US$500 million expected to be achieved within the next two years, in addition to the US$2 billion in cash improvements through portfolio optimization.
Newmont has paid over US$5 billion to shareholders since 2019 and raised dividends by almost 35% annually in the last seven years.
In Q3 of 2023, Newmont produced 1.3 million ounces of gold and 10,000 tonnes of copper, generating US$933 million in adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and more than US$1 billion in operating cash flow, an increase of 53% year over year.
Newmont expects to produce 5.3 million ounces of gold from its current portfolio in 2023, with a resulting all-in sustaining cost of US$1,400 an ounce.
In Q3 of 2023, Newmont reported revenue of US$2.5 billion at a realized gold price of US$1,920 per ounce, allowing it to end the quarter with a free cash flow of US$397 million. It ended Q3 with US$3.2 billion in cash and a net-debt-to-adjusted EBITDA ratio of 0.7 times, which is quite sustainable.
Newmont should benefit if gold prices move higher in 2024, allowing the company to raise profit margins at an accelerated pace. Priced at 15 times forward earnings, Newmont stock trades at a discount of 71% to consensus price target estimates.
