Investing in beaten-down dividend stocks allows shareholders to benefit from an elevated yield and potential outsized capital gains. In this article, I have identified one quality undervalued TSX stock that also offers you a tasty dividend. Moreover, this Dividend King is well-positioned to grow its dividend payouts over the next two years, enhancing the yield at cost significantly.
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Is this TSX dividend stock a good buy?
Valued at a market cap of $3.7 billion, Premium Brands (TSX:PBH) operates in Specialty Foods and Premium Food Distribution segments. It manufactures and distributes processed meats, deli products, sandwiches, and seafood across North America, Europe, and Asia. Founded in 1917, it offers various branded food products through retail and convenience store channels.
Premium Brands Holdings reported record first-quarter (Q1) sales and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization). Notably, the food manufacturer’s U.S. growth initiatives helped drive solid performance despite commodity cost inflation pressures.
In Q1, it posted revenue of $1.67 billion, up 15% year over year, driven by 5.9% growth in its Specialty Foods segment and acquisition contributions of $75.6 million. Premium Brands also maintained its full-year 2025 midpoint guidance of $7.3 billion in sales.
The company’s U.S. operations showed strong performance, with 9.9% organic volume growth across core growth initiatives. The Bakery Group led with an impressive 33.6% volume growth, while the Protein and Sandwich Groups delivered 10.0% and 8.0% growth, respectively.
Adjusted EBITDA reached $136.9 million, while adjusted earnings per share came in at $0.70. However, margin pressures persisted, with Specialty Foods’ adjusted EBITDA margin declining to 9.1% from 9.5% a year ago due to commodity cost inflation. Management expects these pressures to continue in Q2 before easing in the second half of the year.
Premium Brands is executing a three-step plan to reduce its leverage, which remains above its long-term target of 3.5:1 to 4:1 total debt to EBITDA. The plan includes inventory optimization, sale-leaseback transactions valued at approximately $230 million expected in Q2, and growing EBITDA through existing operations.
Capital expenditures for the quarter totalled $66.2 million, with $51.9 million allocated to project capital expenditures. PBH noted that almost $860 million in project capital investments between 2022 and 2024 has resulted in $1.3 billion of incremental sales capacity.
Management expects revenue growth to be weighted toward the second half of 2025 as new product launches and capacity come online throughout the year.
Is the TSX stock undervalued?
Analysts expect Premium Brands to increase sales from $6.47 billion in 2024 to $8.93 billion in 2027. Comparatively, adjusted earnings are forecast to expand from $3.98 per share in 2024 to $8.44 per share in 2027.
Today, the TSX stock trades at a forward price-to-earnings multiple of 15.3 times, below its 10-year historical average of 21 times. If PBH stock is priced at 15 times forward earnings, it will trade at $127 in May 2027, above the current price of $82.4.
In addition to a potential 50% upside for investors, the company also pays an annual dividend of $3.40 per share in 2025, indicating a yield of 4.1%. Bay Street estimates dividends to rise to $4.32 per share in 2027.
Moreover, PBH is forecast to report a free cash flow of $400 million in 2027. Given its outstanding share count, its dividend expense in 2027 will be less than $200 million, indicating a healthy dividend-payout ratio of 48%.
