2 Absurdly Cheap Stocks to Buy and Hold for Years

Cheap TSX dividend stocks such as Stella-Jones should be part of your shopping list in June 2024.

| More on:
edit Sale sign, value, discount

Image source: Getty Images

Canadians with a long-term horizon can consider investing in undervalued stocks that trade at a discount to their intrinsic value. It’s crucial to identify a portfolio of quality companies that have the potential to deliver outsized gains to shareholders over time. Here are two such absurdly cheap stocks to buy and hold for years.

Stella-Jones stock

Valued at $4.8 billion by market cap, Stella Jones (TSX:SJ) is among North America’s largest providers of pressure-treated wood products. It supports the infrastructure required to deliver electrical distribution and transmission and the operation and maintenance of railway transportation systems.

Stella-Jones supplies electrical utilities and telecom companies with wood utility poles and railroad operators with railroad ties and timbers.

In the last decade, the TSX stock has more than tripled investor returns after adjusting for dividend reinvestments. It pays shareholders an annual dividend of $1.12 per share, translating to a forward yield of 1.3%.

In the first quarter (Q1) of 2024, Stella Jones reported revenue of $775 million, up 9% year over year, driven by organic sales growth in infrastructure product categories. Its Q1 EBITDA (earnings before interest, tax, depreciation, and amortization) stood at $156 million, up 30% year over year, indicating a margin of 20.1%.

Stella-Jones aims to invest between $65 million and $75 million annually in capital expenditures to maintain the quality of its assets. It has allocated an additional $25 million in the next two years to support growth in the utility poles product category and is focused on pursuing accretive infrastructure-related acquisitions that enhance its strategic positioning.

Stella-Jones has raised its dividends by almost 15% annually in the last 10 years, enhancing the effective yield significantly. Priced at 14.7 times forward earnings, the TSX stock is quite cheap and trades at a discount of 10% to consensus price target estimates.

Toromont Industries stock

Another cheap TSX dividend stock that pays shareholders a dividend is Toromont Industries (TSX:TIH). Valued at $9.6 billion by market cap, Toromont operates through two business segments which include Equipment Group and CIMCO.

The Equipment Group business includes one of the largest Caterpillar dealerships by revenue and geographic territory. It also includes rental operations and a material handling business. CIMCO is among North America’s largest suppliers of thermal management solutions that enable customers to reduce energy consumption and emissions.

Since June 2014, Toromont Industries stock has returned over 400% to shareholders in dividend-adjusted gains. The company increased bookings by 62% year over year in Q1 of 2024. Equipment Group bookings rose due to several large orders in mining and construction while CIMCO bookings were up on solid product and services demand.

It ended the March quarter with an order backlog of $1.4 billion, up from $1.1 billion in the year-ago period.

Priced at 18.8 times forward earnings, Toromont Industries trades at a 15% discount to consensus price target estimates. It pays shareholders an annual dividend of $1.92 per share, indicating a yield of 1.6%. These payouts have more than tripled in the last 10 years.

The two TSX stocks have an enviable dividend-growth profile and trade at a compelling valuation in June 2024.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Stella-Jones. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Cogs turning against each other
Dividend Stocks

How Interest Rate Cuts Affect REITs

Now is a good time to investigate Canadian REITs and take a position in the form of stocks or exchange…

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

3 Affordable Passive-Income Stocks That Pay Monthly

These three monthly-paying dividend stocks could boost your passive income.

Read more »

Dividend Stocks

Retirees: 2 High-Yield Dividend Stocks to Buy in July

Retirees can rely on these dividend stocks for steady passive income and high yields.

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

CPP Benefits Not Enough? This Top Dividend Stock Can Help Fund Your Retirement

Dividend stocks like Fortis Inc (TSX:FTS) have funded many a retirement.

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Dividend Stocks

The Ultimate TSX Stock to Buy With $1,000 Right Now

Once at triple-digit prices, Nutrien stock (TSX:NTR) now offers a steal of a deal for long-term growth as well as…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

Set and Forget: 1 Dividend Stock That Could Create $1,000 in Tax-Free Passive Income in 10 Years

Enbridge operates a low-risk business that has allowed the TSX dividend giant to raise its payout by 10% annually since…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Passive Income: How to Make $106 Per Month Tax Free

Holding quality, high-yield dividend stocks such as Freehold Royalties in a TFSA can help you earn tax-free income for life.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Earn a TFSA Paycheque Every Month and Pay No Taxes on it

Stocks like First National Financial (TSX:FN) pay you monthly. You can also earn monthly dividends through portfolio diversification.

Read more »