Don’t sleep on the top dividend stocks, especially while many of them are down by double-digit percentage points from their all-time highs. Undoubtedly, it can be an uneasy time to go bargain hunting, even as the TSX Index marches steadily (and quietly) toward new heights. In this piece, we’ll concentrate on the passive-income investments that may be trading at a sizeable enough discount that there may be a pretty wide margin of safety to be had for patient value hunters who are willing to ride the rougher waters out.
Undoubtedly, the cheap dividend plays won’t be everybody’s cup of tea, especially while they’re struggling to sustain a meaningful rebound. And while new highs may be out of the cards, I still would not sleep on the following names as interest rates begin to drop like a rock over the next two years or so. Indeed, when it comes to the best-in-breed dividend payers, you need more than just macro tailwinds of lower rates to power a move to new highs.
The good news is the following firms appear to have stellar managers who have the expertise and know-how to bring the following firms back to their former glory. So, without further ado, let’s get into two undervalued names that may be “too cheap” for dividend hunters going forward.
Nutrien
Nutrien (TSX:NTR) is one of those commodity plays that’s far better to buy on the way than the way down. Indeed, the commodity markets can be rather difficult to play as a new investor. Downturns in various commodities can drag on for many years on end. And though I believe there’s value in inching your way into a position gradually after a downturn has dragged on for quite some time, I think that trading in and out of commodity plays can be a risky endeavour for investing newbies.
When it comes to Nutrien, I see the dividend play as severely oversold. It’s one of the world’s leading agricultural commodity producers. And though crop (and fertilizer) prices are well off their highs, I believe the space stands to benefit from secular tailwinds (the world’s growing population). Additionally, let’s not discount the company’s strong retail business, which can help withstand ugly storms hitting the potash scene. Understandably, the cyclicality of the name will make for a rather uncomfortable roller-coaster ride. Nobody wants to introduce more volatility in their Tax-Free Savings Account or Registered Retirement Savings Plan funds.
That said, if you seek a market leader, a cheap valuation, and a swollen yield, I think it makes sense to start nibbling into a starter position as soon as today. At writing, shares of NTR are down close to 53% from their highs. With a nice 4.65% dividend yield, perhaps the $31.9 billion fertilizer juggernaut is a buy, while rail strike jitters drag the stock closer to the $63 level.
Telus
Telus (TSX:T) is another hard-hit firm that’s been a rather choppy ride in recent years. Like Nutrien, T stock is stuck in a multi-year bear market, now down around 37% from all-time highs. With a colossal 7.1% dividend yield, however, I see the telecom titan as a deep-value play hiding in plain sight, especially if the Bank of Canada cuts rates faster from here. Additionally, with a solid wireless business and potential market share to gain, I’d not sleep on the name’s comeback hopes.
As the dividend yield hovers between 7% and 8%, some may ponder whether the dividend is safe. Though it may be a tad stretched, I view it as safe, especially given where rates will likely head from here and the relief such rate cuts will provide to Telus and other telecoms.
