Investing in undervalued dividend stocks can help you earn a steady stream of recurring income and benefit from long-term capital gains. While there are several dividend-paying companies trading on the TSX, just a handful of these stocks are undervalued and equipped to maintain payouts across market cycles.
One top TSX dividend stock is EQB (TSX:EQB), which pays shareholders an annual dividend of $1.80 per share, translating to a forward yield of 1.9%. Let’s see why I’m bullish on EQB stock right now.
An overview of EQB
Valued at $3.6 billion by market cap, EQB is a digitally-powered financial services company with $123 billion in assets under administration. It offers banking services through Equitable Bank, a wholly-owned subsidiary and Canada’s seventh-largest bank in terms of assets. It also operates a wealth management division through ACM Advisors that specializes in alternative assets.
EQB aims to leverage technology and deliver enhanced personal and commercial banking experiences to roughly 639,000 customers and six million credit union members through its businesses.
A strong fiscal Q2 of 2024
EQB reported record revenue and pre-provision, pre-tax earnings in the fiscal second quarter (Q2) of 2024 (ended in April), primarily due to higher sales, margin expansion, and higher non-interest revenue. Its Q2 results included a full quarter of results from ACM Advisors, increasing its loans under management and EQ Bank customers and deposits.
Equitable Bank reported a net reduction in GILs, or gross impaired loans, from Q1 due to a 22% reduction in commercial banking GILs.
EQB reported revenue of $317 million, an increase of 22% year over year. Comparatively, earnings grew by 7% while it ended Q2 with a return on equity of over 15%. It raised dividends by 22%, which is exceptional for a bank stock, given the lending environment remains tepid.
In the last 12 months, EQB has reported more than $1 billion in sales and $433 million in earnings. So, priced at less than nine times trailing earnings, EQB stock is really cheap.
EQB’s net interest margin expanded by 10 basis points sequentially to 2.11% due to higher yields across asset classes, higher prepayment income, a diversified funding strategy, lower-cost EQ Bank deposits, and high single-family renewal rates.
Its loans under management rose by 13% year over year, showcasing the company’s expansion capabilities amid a volatile and challenging macro environment.
The Foolish takeaway
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | Capital Gains | Total Payout |
| EQB | $94.50 | 106 | $191 | $1,100 | $1,291 |
Investing $10,000 in EQB stock will help you purchase 106 shares of the company and earn $191 in dividends in the next 12 months. Further, the TSX bank stock trades at a discount of 11% to consensus price targets, which means your capital gains could total $1,100. Basically, an investment of $10,000 would help you earn $1,291 in passive income in the next 12 months.
According to Bay Street estimates, EQB is forecast to end fiscal 2029 with adjusted earnings of $23.5 per share. So, if the TSX stock is priced at 10 times forward earnings, it should be priced at $235 by July 2029, indicating an upside potential of 140% from current levels.
