The Bank of Canada’s decision to cut interest rates in the last two meetings has driven the TSX Composite benchmark to new heights. The central bank’s latest policy moves have boosted the Canadian stock market, especially the sectors that benefit from lower borrowing costs and higher consumer spending. However, despite the overall market upswing, some dividend-paying stocks on the Toronto Stock Exchange still appear undervalued or oversold based on their long-term fundamentals and future earnings potential. In addition, such dividend stocks right now have generous yields.
Here are two top TSX dividend stocks that still look oversold but could deliver strong long-term returns.
Magna International stock
Even though many TSX stocks are trading close to their all-time highs right now, Magna International (TSX:MG) hasn’t seen much appreciation of late, as it’s currently nearly 33% off its 52-week high. This Aurora-headquartered auto parts and mobility company currently has a market cap of $15.6 billion as its stock trades at $54.36 per share with 30.6% year-to-date losses. Nevertheless, MG stock offers an attractive 5% annualized dividend yield at this market price.
The recent declines in Magna stock could be attributed to its weak financial performance due mainly to the ongoing macroeconomic woes. In the quarter ended in June 2024, the company’s total revenue remained nearly flat on a YoY (year-over-year) basis at around US$11 billion. Higher warranty costs, foreign exchange headwinds, and reduced earnings from lower assembly volumes drove its adjusted earnings down by 10% YoY for the quarter to US$1.35 per share, missing Street analyst expectations of $1.44 per share.
Although slower-than-expected penetration of electric vehicles and other economic factors have affected Magna’s financial growth in recent quarters, its continued investments in emerging automotive technologies, including advanced driver-assistance systems, strengthen this TSX dividend stock’s long-term growth outlook. Considering this, it could be the right time for long-term investors to buy this seemingly oversold dividend stock at a bargain right now.
Algonquin Power & Utilities stock
Algonquin Power & Utilities (TSX:AQN) could be another strong dividend stock to buy on the dip right now. This Oakville-based diversified utilities company currently has a market cap of $5.4 billion as its TSX-listed stock trades at $7 per share after sliding by 16.3% so far in 2024. Just like Magna, AQN stock also offers a 5% annualized dividend yield at the current market price.
In the June quarter, a weakness in its regulated services group drove Algonquin’s total revenue down by 4.7% YoY to US$598.6 million. Despite lower revenue, however, the company’s adjusted quarterly net profit jumped by a solid 16% YoY to US$65.2 million, also exceeding Street analysts’ expectations of US$60.1 million, with strong performances in both its regulated services and renewable energy groups. Similarly, it also managed to reduce its long-term debt by roughly 3% from a year ago to $8.3 billion.
Overall, Algonquin management’s continued focus on improving regulated utility operations, coupled with its sensible capital expenditure plans, brightens its long-term growth outlook and makes it a reliable TSX dividend stock to buy now.
