1 Miracle-Working Dividend Stock Down 18% to Buy Immediately

Buying a stock while it’s down is a time-tested strategy of long-term investors. This energy stock has the added bonus of a growing dividend yield, making it not just a bargain, but an income-generating one too.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published December 18, 2024 8:30 pm EST

Buying a stock while it’s down is a time-tested strategy that smart investors employ to generate long-term returns. It’s like spotting your favourite designer item on sale. You get all the quality at a reduced price, setting yourself up for appreciation in value over time. The added bonus is a growing dividend yield, making it not just a bargain, but an income-generating one too.

Pumps await a car for fueling at a gas and diesel station. — Source: Getty Images

Consider Parkland

When stocks experience a downturn, it often signals short-term turbulence rather than a fundamental flaw. For Parkland (TSX: PKI), the recent 18% drop in its stock price was primarily influenced by broader market conditions and lower refining margins – a factor that’s cyclical and likely to recover with time. The dividend stock has a strong history of navigating market challenges and emerging stronger. Evidence of this resilience is already visible: the dividend stock has started climbing over the past month, signalling renewed investor confidence.

Parkland’s recent financial results add nuance to this picture. In its Q3 2024 earnings report, the dividend stock revealed net earnings of $91 million or $0.52 per share, down 60% from the same quarter in 2023. While this might seem like a significant drop, it’s essential to remember that refining margins are notoriously volatile. Parkland’s ability to maintain profitability in such an environment underscores the strength of its operations. In the second quarter of 2024, Parkland recorded an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $504 million, further demonstrating its operational efficiency.

A crucial aspect of Parkland’s appeal is its dividend, which currently offers a yield of approximately 3.95%. This is higher than its five-year average yield of 3.48%, making it an enticing option for income-focused investors. The dividend stock recently announced a dividend of $0.35 per share, reinforcing its commitment to shareholder returns even during challenging times. This payout, coupled with the company’s solid cash flow from operations, ensures that Parkland remains a reliable dividend stock.

Looking ahead

Beyond its dividend and financial performance, Parkland’s business model offers a diversified revenue stream. Operating in fuel retailing, commercial fuel, and refining, the dividend stock is well-positioned to weather fluctuations in individual segments. Its vast geographic reach, which includes operations across Canada, the United States, and the Caribbean, further mitigates risk and provides avenues for growth in multiple markets.

Parkland also boasts a robust cash flow profile, with $1.5 billion in operating cash flow over the trailing 12 months. This financial strength allows it to invest in growth initiatives, maintain its dividend, and reduce debt. Although the dividend stock’s debt-to-equity ratio is high at 199.9%, it’s worth noting that much of this debt supports revenue-generating assets, thus making it a manageable aspect of its financial structure.

For value-focused investors, Parkland’s current valuation metrics are compelling. The dividend stock trades at a forward price/earnings (P/E) ratio of 10.5, significantly lower than its trailing P/E of 26, suggesting expectations of earnings growth. Its price-to-sales ratio of 0.21 and price-to-book ratio of 1.94 also indicate that the stock is attractively priced relative to its assets and revenue.

Foolish takeaway

Parkland aligns well with the strategy of buying quality companies during downturns. While the dividend stock has faced recent challenges, its long-term prospects, consistent dividend payouts, and recovering stock price make it a strong buy. Investors seeking a blend of growth potential and income generation should take note. This could be the kind of opportunity that pays off handsomely as the market re-evaluates and rewards Parkland’s steady progress.

All considered, buying Parkland now, while the dividend stock is down and showing positive momentum, is like catching a pendulum mid-swing before it reaches a new height. For those looking to build wealth while enjoying reliable dividends, PKI offers a perfect mix of recovery potential and steady income. An investment that’s hard to pass up.