The TSX Composite benchmark is currently trading close to its all-time highs due mainly to investors’ expectations that the Bank of Canada and the U.S. Federal Reserve will soon start easing their monetary policy stance.
On the one hand, these expectations have driven a rally in many growth stocks. On the other hand, some fundamentally strong Canadian dividend stocks have seen a downward correction in 2024 so far as uncertainties about the near-term macroeconomic outlook continue. This correction presents an opportunity to buy these dividend-paying stocks at attractive valuations and hold them for the long term. In this article, I’ll highlight one such Canadian stock you can buy right now at a bargain.
A top Canadian dividend stock to buy right now
Stelco Holdings (TSX: STLC) is the dividend stock I’m talking about. It’s a Hamilton-headquartered steel producer and supplier with a market cap of $2.3 billion, as its stock currently trades at $41.14 per share. Based on its latest annual financial figures, the company generates slightly less than 70% of its total revenue from Canada. At the same time, the remaining revenue comes from other international markets, including the United States.
After skyrocketing by 427% in the previous four years combined, shares of Stelco have witnessed 18% value erosion so far in 2024. The recent declines in STLC stock, however, have made its annualized dividend yield even more attractive, which currently stands at 4.9%.
Last year, lower average selling price for steel and other temporary operational challenges affected Stelco’s financials, resulting in a downside correction in its stock in recent months. In 2023, the steelmaker’s total revenue slipped by nearly 16% YoY (year over year) to $2.9 billion due mainly to lower shipping volume and weaker prices.
Although the annual sales of its non-steel products rose nearly 11% YoY, this factor, along with higher finance costs, pressured the company’s margins. Despite a YoY decline, its adjusted 2023 earnings of $3.95 per share exceeded Bay Street analysts’ expectations of $3.53 per share by a wide margin.
Strong long-term outlook
Whether you’re investing in stocks to multiply your hard-earned savings or for dividend income, you should always consider the long-term prospects of the company before buying its stock. In this regard, I find Stelco’s future growth potential very attractive.
If you don’t know it already, steel is widely used in various sectors, including automotive, construction, and infrastructure. These are some of the most resilient industries that drive the global economy. As the world economy recovers from the ongoing slowdown, the steel demand is expected to rise significantly in the coming years. Stelco is well-positioned to capitalize on this opportunity, as it has a low-cost production base, a diversified product portfolio, and a strong customer network.
Despite facing lower revenue and operational challenges in 2023, its ability to adapt to market dynamics makes Stelco a great dividend stock to invest in for the long term. This adaptability and strong demand could be some of the key reasons why the company expects its margins to expand in the first half of 2024, which can potentially drive its share prices higher.
