The ongoing market volatility allows investors to gain exposure to quality stocks trading at a discount. Due to headwinds such as rising interest rates and inflation, companies in cyclical sectors such as banking and automobiles have trailed the broader markets in the last two years. However, the pullback has also increased the dividend yields for these companies, making them attractive for income-seeking investors.
Here are two such TSX dividend stocks I’d buy in May 2024 to benefit from outsized gains when market sentiment improves.
Magna International stock
Valued at a market cap of $19.4 billion, Magna International (TSX:MG) is the fourth-largest automobile manufacturer globally. With 342 manufacturing facilities around the world, Magna reported sales of $42.8 billion in 2023.
Magna believes its ecosystem of interconnected products and vehicle expertise enables it to deliver unique system solutions, positioning the company at the forefront of the industry-wide shift towards software-defined vehicles.
According to Magna, its integrated systems approach aligns with the manner in which OEMs (original equipment manufacturers) design, source, and manufacture vehicles.
Despite a sluggish macro environment, Magna International is forecast to expand adjusted earnings by 9.2% year over year to $8.2 per share. In the next five years, analysts expect earnings to grow at 22.8% annually, making Magna one of the cheapest stocks on the TSX.
Priced at eight times forward earnings, Magna stock trades at a 30% discount to consensus price target estimates. In addition to capital gains, Magna pays shareholders a quarterly dividend of $0.64 per share, translating to a forward yield of over 3.5%. Further, these payouts have risen at 9.2% annually in the last 19 years, which is exceptional for a company in a mature industry.
While Magna International stock trades 46% below all-time highs, the TSX stock has returned 280% in the last 20 years after adjusting for dividends.
National Bank of Canada stock
One of the top-performing TSX stocks in the last 20 years is National Bank of Canada (TSX:NA). With a market cap of $38 billion, National Bank stock has returned more than 1,000% to shareholders since the end of April 2004, outpacing peers and the broader markets by a wide margin.
Despite its market-thumping gains, National Bank stock offers a forward yield of 3.8%, given its annual dividend payout of $4.24 per share. Moreover, the TSX bank stock trades at 11.2 times forward earnings, which is very reasonable.
In the fiscal first quarter (Q1) of 2024 (ended in January), National Bank reported a net income of $922 million, an increase of 5% year over year, compared to $876 million in the same period last year. Its earnings also rose from $2.47 per share to $2.59 per share in this period.
National Bank of Canada attributed the increases to revenue growth across business segments, in addition to effective capital deployment and active cost-management measures.
National Bank’s diversified business segments allow it to raise dividends at a steady rate each year. Since 2004, National Bank has hiked dividends by 9.6% annually, which is among the highest in the banking sector.
