Canada is home to some of the most interesting low-cost dividend stocks. With the unfavourable U.S. dollar exchange rate, Canadians have plenty of reasons to opt for TSX dividend stocks rather than their American counterparts. Why bother venturing south when yields are somewhat richer, with valuations slightly lower (at least on average) here in Canada?
Indeed, the Canadian economy is sure to roll over some rough terrain in the coming months. But the TSX Index, I believe, still looks quite cheap, at least relative to the U.S. averages. In this piece, we’ll check in with one of the most neglected dividend stocks that I think offer a good risk/reward tradeoff for investors seeking to build wealth for the next three years or so.
So, whether you’re looking for an income play for your TFSA (Tax-Free Savings Account) or a new holding to your RRSP (Registered Retirement Savings Plan), the following play may be worth a look.
Sleep Country Canada
Sleep Country Canada (TSX: ZZZ) stock is a sleep retailer that’s been steadily inching higher since last year’s lows. With earnings on tap later this week, questions linger as to what can help the leading mattress retailer get back on the high track.
Indeed, with the rather sluggish Canadian consumer who’s cautious about where they spend their money, expectations seem quite muted. With shares down around 30% from their highs, I think estimates are slightly on the conservative side going into the number. But that doesn’t mean I’d be a net buyer of shares ahead of the big reveal.
Though 13.4 times trailing price to earnings (P/E) isn’t all too high a price to pay for the firm, I think another “breather” or pause in the rally could be in the cards for a few more months before the rally resumes. Indeed, it’s not like consumers suddenly have enough to splurge on a big-ticket item like a mattress quite yet.
For now, I’d watch ZZZ stock closely. Once the economy really heats up, the stock could spike higher on the back of a surge in demand. Until then, I view ZZZ stock as rather untimely. The 3.5% dividend yield is great, but it could easily swell a bit more, perhaps on more of a dip. In short, Sleep Canada is a leader in its niche corner of retail. But headwinds remain horrid. And until they pass, I’d rather nibble than take a big bite of shares.
Looking ahead, Sleep Country’s newly-opened “super hub” storage facilities could really help kick operating margins into high gear. Such margin gains will be long-lived, and I suspect they’ll really start to move the needle higher once mattress demand comes back into full force.
The Foolish bottom line
With an excellent management team and some pretty decent recent results to build off of, ZZZ stock looks like a bargain buy for income investors. That said, I’d be a bit more cautious ahead of coming earnings, as they could go either way. If you’re keen on the name, perhaps buying a bit here and more after the result could prove prudent.
