There are plenty of low-cost stocks on the TSX Index for smaller retail investors, many of whom are just looking to dip a toe into the equity waters. Undoubtedly, just because shares of a firm trade at less than $30 does not mean that they’re cheap.
In fact, a wide range of penny stocks (think trading for just a few bucks per share) may actually prove expensive. Indeed, it can be quite hard to believe that shares of a firm going for pennies per share may actually be “expensive.” At the end of the day, the share price is a matter of convenience for small investors, not an indicator of the valuation of a firm.
You could have a company trading for north of $3,000 per share that’s dirt-cheap compared to a troubled penny stock with a firm that could be flirting with bankruptcy. At the end of the day, the share price is no indicator of value. Instead, new investors should focus on the price-to-earnings (P/E) ratio. And if that’s not present due to a lack of profits, the price-to-sales (P/S) ratio is also a pretty decent valuation tool to stash in your arsenal.
So, with that out of the way, let’s check in with two Canadian dividend plays that are both cheap and have shares that are going for less than $30.
Telus
Up first, we have hard-hit telecom titan Telus (TSX: T), which currently goes for $22 and change at the time of writing. After a nice bounce off last year’s lows, shares look to be on the descent again. Though $20 per share could be in the cards at some point later this year, especially if Canada sinks into recession, I’d not look to panic-sell the name — not while the dividend yield is at 6.52%.
The telecom industry is under pressure, but over the next two years, I see relief in sight as central banks wind down their fight with inflation. Lower rates mean Telus’s borrowing costs stand to fall. For a firm that’s spending a great deal on upgrading its telecom infrastructure, lower rates could really help the firm get a boost as it seeks to move on from what has been a turbulent past few years.
I view the dividend as safe and the stock as ripe for a correction to the upside at some point over the next 18 months. At 22.6 times forward P/E, T stock is a fair price to pay for one of the most intriguing dividend heavyweights in the market right now.
Maple Leaf Foods
Up next, we have Maple Leaf Foods (TSX: MFI), an often-overlooked meats play that hasn’t really done much over the past five years (shares dipped 15% over the timespan). With a nice 3.83% dividend yield, the $2.84 billion mid-cap stock has a lot going for it, especially for those hunting down value plays. The latest round of weak quarterly results shouldn’t cause investors to hit that sell button.
Not while the stock goes for less than 0.6 times P/S. That’s cheap. Of course, Maple Leaf won’t be a timely play for capital gains seekers. Regardless, I view the play as intriguing while it’s going for just north of $23 per share.
