Value investing involves identifying a portfolio of fundamentally strong stocks that trade below their intrinsic value. Investors such as Warren Buffett have shown that gaining exposure to quality, undervalued stocks is a proven strategy to generate market-beating returns over the long term. Here are two cheap dividend-paying TSX stocks you can buy in September 2024. Let’s dive deeper.
Dexterra Group stock
Valued at $390 million by market cap, Dexterra Group (TSX:DXT) provides support services to manage and operate infrastructure in Canada. It has three primary business segments:
- Integrated Facilities Management: The segment delivers operation and maintenance solutions for built assets in public and private sectors such as aviation, defence, healthcare, and hotels.
- Modular Solutions: It designs, manufactures, transports, and installs residential, retail, and commercial modular buildings.
- WAFES: It provides workforce accommodation, camp management, and catering services.
While the company operates in low-margin segments, its sales have increased from $261 million in 2019 to $1.17 billion in the last 12 months. Additionally, its gross profit margins have widened from 10% to 13.2% in this period.
An improving margin base and widening cash flow allow Dexterra Group to pay shareholders an annual dividend of $0.35 per share, translating to a yield of almost 6%. Given its outstanding share count, Dexterra’s annual dividend payout is $22.4 million. Comparatively, its free cash flow in the last 12 months has totalled $55.4 million, indicating a payout ratio of less than 50%. Moreover, Dexterra generates enough cash to raise dividends and service interest payments.
Analysts expect Dexterra to expand its adjusted earnings from $0.41 per share in 2023 to $0.7 per share in 2025. So, priced at nine times forward earnings, the TSX stock is undervalued, given its earnings growth estimates and high dividend yield. Bay Street is bullish on Dexterra and expects the stock to surge over 35% in the next 12 months.
North American Construction Group stock
North American Construction Group (TSX:NOA), valued at $700 million by market cap, provides equipment maintenance and mining and heavy construction services in Canada, the U.S., and Australia. In the last 12 months, It has reported revenue of $1.09 billion, up from $719 million in 2019. Its operating income has more than doubled from $59 million to $138 million in this period.
North American Construction pays shareholders an annual dividend of $0.40 per share, indicating a yield of 1.5%. Its outstanding share count suggests the company’s dividend payments are close to $11 million yearly. In 2023, its free cash flow totalled $67.6 million, up from $29.5 million in 2020. Notably, its free cash outflow in the last two quarters is over $70 million, which might make investors nervous.
In the last decade, North American Construction has raised its quarterly dividend from $0.02 per share to $0.10 per share, indicating an annual growth rate of 17.5%.
Priced at 6.5 times forward earnings, North American Construction stock is attractive to value investors. Analysts are bullish on the cheap TSX stock and expect it to surge almost 60%, given consensus price target estimates.
