The Canadian equity markets are upbeat this year, with the S&P/TSX Composite Index rising 5.8%. Solid quarterly performances and an improving macro environment with easing inflation have increased investors’ confidence, driving the equity markets.
Despite strengthening broader equity markets, the following three dividend stocks still need to participate in the rally for various reasons. They are trading at substantial discounts from their 52-week highs, and their valuations look cheap, thus providing excellent buying opportunities.
Pizza Pizza Royalty
Pizza Pizza Royalty (TSX: PZA) owns and operates 743 Pizza Pizza and Pizza 73 brand restaurants. It has adopted a highly franchised business model, operating all its restaurants through franchisees. It collects royalty from its franchisees based on sales. So, its financials are immune to the rising expenses in this inflationary environment. Meanwhile, the company’s royalty pool income could increase amid increased menu prices due to rising costs.
Further, PZA focuses on launching new products and leveraging its marketing initiatives and technology to drive sales. From the beginning of this year, it has added 45 new restaurants to its royalty pool and removed 14 restaurants that ended their operations. It is constructing new restaurants and projects to increase its traditional restaurant count by 3-4% this year. Further, the company is continuing its renovation program, which could support its same-store sales growth.
Amid solid performance last year, PZA raised its monthly dividend three times. It currently pays a monthly dividend of $0.0775/share, with a forward yield of 6.73%. Also, it trades at an NTM (next 12-month) price-to-earnings multiple of 13.8, making it an attractive buy.
Telus
Second on my list is Telus (TSX: T), which has lost around 25% of its stock value compared to its 52-week high. Higher interest rates and an unfavourable announcement from the CTRC (Canadian Radio-television and Telecommunications Commission) have dragged the company’s stock price down.
In November, CTRC mandated large telcos to share their fibre-to-the-home (FTTH) networks with smaller players, so smaller players can continue to offer their services, thus increasing competition and lowering prices for customers. The announcement would disincentivize companies like Telus, which have invested aggressively in expanding their broadband services. The selloff has dragged its valuation down to attractive levels, with its NTM price-to-sales currently at 1.5.
Despite the near-term weakness, the long-term growth prospects of Telus look solid amid growing demand for telecommunication services due to digitization and remote working and learning. Also, the selloff has increased its dividend yield to 6.94%.
NorthWest Healthcare Properties REIT
Another cheap dividend stock you can buy right now is NorthWest Healthcare Properties REIT (TSX:NWH.UN), which owns and operates 219 income-producing healthcare properties with a total leasable area of 17.7 million square feet. Higher debt levels and increased interest expenses weighed on its financials, thus dragging its stock price down.
However, the healthcare real estate investment trust strengthened its balance sheet by divesting $450 million of assets last year, including non-core assets. It has also amended, extended, and refinanced its debt facilities and lowered its monthly dividend to improve its financial position.
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Meanwhile, NWH continues to enjoy higher occupancy and collection rates, which stood at 97% and 99% in the December-ending quarter. Its highly defensive healthcare portfolio, long-term contracts, and inflation-indeed lease agreements could stabilize its financials. The company currently pays a monthly dividend of $0.03/share, with its forward yield currently at 7.68%.
