In this piece, we’ll tune into two cheap dividend stocks that may be worth picking up as the TSX Index looks to break out at some point in the third quarter. Indeed, just because the TSX is on a respectable run doesn’t mean there’s a relative lack of value to be had.
As we sail into July, investors may wish to check in with the high-yielders that are well off their highs. Indeed, the TSX Index doesn’t tell the whole picture of what’s happening with the consumer. As we inch into year’s end, perhaps it’s the names exposed to the Canadian consumer take could have the most upside.
In this piece, we’ll look at two freshly corrected consumer discretionary picks that seem too cheap for their own good. Only time will tell when the selloff will end. Regardless, the following plays have dividend yields that are large enough to justify getting in early.
Consider shares of quick-serve restaurant firm and the home of Burger King, among other big-name chains, Restaurant Brands International (TSX: QSR) and more than century-old retailer Canadian Tire (TSX: CTC.A).
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Restaurant Brands International
Restaurant Brands International and the rest of the fast-food industry have been giving up ground in recent quarters. Inflation is a notable headwind that’s weighed heavily on recent quarters. Relatively speaking, Restaurant Brands has been a solid performer despite inflation. Still, the stock has really struggled to hang onto any strength this year. Year to date, QSR stock is down just north of 6% and around 14% from 52-week highs.
At 18.1 times trailing price-to-earnings (P/E) ratio, you get three of the best brands in the quick-serve restaurant industry and one relatively unknown brand with a world of growth potential. Burger King, Popeyes Louisiana Kitchen, Tim Hortons, and Firehouse Subs could help QSR really come roaring back once consumer appetites (and wallets) normalize after the last few years of inflation.
Perhaps expanding further into China could help QSR really level up its growth. The company is planning to increase its presence within the region moving forward. Indeed, China has seen macro headwinds of its own. Regardless, I view China as a potential growth booster that could bring forth considerable multiple expansion in the name. All considered, the “growthy” fast-food chain seems too good to pass up while the yield is close to 3.4%.
Canadian Tire
Canadian Tire is a domestic discretionary retailer that’s low 3% year to date and close to 35% from all-time highs. Indeed, the stock chart does not look pretty or timely. Still, the main attraction to the stock, in my opinion, has to be the 5.15% dividend yield.
That’s a super-sized dividend that may not last if discretionary spending comes roaring back while interest rates sink steadily in the next 18 months. If you’re in the belief that rates are headed much lower through 2025 and that Canadian consumers will be in a better spot in the second half of 2024, CTC.A stock seems like a huge market bargain.
The stock doesn’t look all too cheap at 27.3 times trailing P/E. However, if the consumer is poised to start spending again, expect the multiple to compress at the hands of what could be a big upswing in earnings growth. For now, CTC.A stock has gone to sleep, but it may not take long before it awakens.
