Many of Canada’s largest stocks pay substantial dividends. However, if you want a combination of capital upside and dividend growth, it’s best to look at small- and mid-cap stocks.
Sometimes, the best place to look is in areas where there is value, but the market does not yet understand or appreciate that value. If you are looking for some no-brainer dividend stocks to buy under $40 per share, here are three to consider right now.
A utility stock for growing dividends
AltaGas (TSX: ALA) has been one of the best-performing stocks in the utility and natural midstream space over the past few years. Its stock is up 60% over the past five years.
That is a vast overperformance compared to larger peers like TC Energy, which has a negative stock return, or Enbridge, whose stock is only up 4%.
AltaGas has transformed its business in that time. Today, 55% of its income comes from a steady, regulated utility business in the United States.
With LNG (liquified natural gas) investments gaining momentum, its more cyclical gas processing business continues to be positioned for growth. Its balance sheet continues to improve. This business is much more stable and predictable than it once was. Hence, it has also commanded a nice valuation bump.
Today, AltaGas stock trades for $31 per share and has a 3.8% yield. It is postured to grow its dividend by 5-7% per year in the near future.
A financial stock for growth and income
TMX Group (TSX: X) has been a strong place to earn both capital and income returns in the past few years. Its stock is up 103% over the past five years. Likewise, it has grown its dividend per share by an 8.6% compounded annual rate in that time.
It is best known for operating the TSX and TSX Venture Exchange in Canada. That is also among several derivative and commodity trading platforms it operates. While these businesses can be subject to some volatility, it has been focusing on recurring revenue sources like analytics, data insights, and capital formation.
TMX stock trades for $37 per share and has a 2% dividend yield today. For a stock with high single-digit earnings and dividend-per-share growth potential, it is a solid bet today.
A real estate stock for an attractive dividend yield
If you want a larger dividend and a valuation recovery, real estate stocks like Dream Industrial Real Estate Investment Trust (TSX: DIR.UN) are attractive today. Dream is one of the largest industrial real estate operators in Canada. It also has a substantial portfolio in Europe and a strong joint venture management platform.
Despite the challenging interest rate environment, Dream stock is still up 38% over the past five years. Yet, the company trades at a significant discount to its private market value. This is despite the company delivering exceptionally strong double-digit rental rate growth across its portfolio.
Right now, its occupancy is at 96%, which remains a solid number. Its current average portfolio rent is 32% below current market rents. In the coming years, Dream has considerable organic growth potential from increasing its rents to market prices.
Dream Industrial stock trades for $12.50 per share. It has a 5.6% distribution yield. It pays its distribution monthly. As interest rates start to decline, this stock could see a good recovery as it returns closer to its net asset value.
