When it comes to long-term dividend stock opportunities on the TSX, Yellow Pages (TSX: Y) may not be the first company that springs to mind. Yet it’s quietly proving to be a strong contender. Offering an impressive dividend yield and an undervalued stock price, this company has a lot going for it. For aggressive investors looking to hold onto a dividend stock that balances risk with reward, Yellow Pages is a stock worth knowing.
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Yes, Yellow Pages is still around
The business directory company got started in 1908, and it’s evolved with the times. Today, about 80% of its revenue comes from digital, and Yellow Pages works with more than 75,000 Canadian businesses.
Dividend support
So, about that sizable dividend yield: Yellow Pages has a forward annual dividend yield of 10.3%, which is substantial, especially in today’s market. For context, a yield above 5% is generally considered excellent. This payout also comes with a payout ratio of just 36.9%, meaning that the company is using only a modest portion of its earnings to pay dividends. This low payout ratio suggests that the dividend is sustainable, leaving room for potential growth.
In addition to its dividend strength, Yellow Pages’ recent earnings report, although mixed, tells a story of resilience. The company reported quarterly revenue of $224.8 million with a profit margin of 17%. Quarterly earnings, however, dropped a considerable 40% year over year, so potential investors should be aware of that and do their own research.
On the balance sheet front, Yellow Pages has $32.84 million in cash and $42 million in debt, with a current ratio of 1.79, which indicates healthy liquidity. The company’s levered free cash flow of $30.19 million shows that it can continue to pay down debt while maintaining its strong dividend payouts. This solid financial foundation gives me confidence that Yellow Pages can weather future challenges and keep delivering value to its shareholders.
Yellow Pages’ valuation and stock price
The stock currently trades at a trailing P/E ratio of 3.98. This suggests that the stock could be undervalued, as the average P/E ratio for companies in the same industry is much higher. The market may not be recognizing all of Yellow Pages’ value here. Similarly, its price-to-sales ratio of just 0.68 and enterprise value-to-earnings before interest, taxes, depreciation and amortization (EBITDA) of 2.14 suggest it’s flying under the radar. For investors looking for value, these metrics indicate that Yellow Pages could be a steal.
Momentum is also working in Yellow Pages’ favor. Although the stock is down about 16.37% over the past year, its recent performance shows signs of a rebound. Currently trading near the low end of its 52-week range, around $9.86, there’s plenty of upside potential as the stock catches up with its fundamentals. If the market corrects its undervaluation, there could be significant price appreciation in addition to the generous dividend yield.
Bottom line
All together, Yellow Pages may not be the flashiest dividend stock on the TSX, but its strong dividend yield, undervalued stock price, and solid financials make it a compelling long-term hold. For dividend investors looking for both income and potential capital gains, Yellow Pages offers an attractive mix of value and reliability. Holding onto this dividend stock could prove to be a rewarding strategy over the years.
