Investing in undervalued dividend stocks enables you to benefit from a steady, passive-income stream and potentially generate long-term capital gains. Moreover, if these stocks are held in a TFSA (Tax-Free Savings Account), both dividend income and capital gains are exempt from taxes.
So, here are two undervalued TSX stocks you can buy for your TFSA right now.
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Is this TSX dividend stock a good buy?
Pembina Pipeline (TSX: PPL) continues to leverage its comprehensive midstream platform to capitalize on growth opportunities in the Western Canadian Sedimentary Basin (WCSB). The company delivered strong first-quarter (Q1) results, with adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $1.167 billion, representing 12% year-over-year growth, while maintaining its full-year midpoint guidance of $4.3 billion.
Pembina’s competitive moat is centred on its integrated value chain approach, which combines transportation, fractionation, and marketing services under long-term take-or-pay contracts. Recent strategic wins include securing extended commitments with a leading Montney producer across the full spectrum of services, reinforcing demand for pipeline and fractionation expansions.
Key growth catalysts include advancing the Cedar LNG project remarketing process with preferred counterparties in active negotiations, positioning Pembina to benefit from growing WCSB volumes and enhanced market diversification.
Additionally, Pembina is evaluating the addition of a de-ethanization tower at RFS III to fulfill ethane supply commitments to Dow, which could potentially optimize the Redwater complex.
Pembina’s scale economies and switching costs from contracted volumes provide defensive characteristics, while a proven track record of safe, on-time, on-budget project delivery supports future expansion opportunities. The fee-based business model provides stability amid commodity volatility, positioning Pembina well for sustained value creation.
Pembina is expected to increase its dividend per share from $2.74 in 2024 to $2.83 in 2025, translating to a forward yield of 5.6%. Moreover, its annual dividends are forecast to increase to $3.15 per share in 2029.
Analysts remain bullish on the TSX dividend stock and expect it to increase by 20%, based on consensus price targets. After adjusting for dividends, cumulative returns could be closer to 26%.
Is this TSX stock undervalued?
Algonquin Power & Utilities (TSX: AQN) is making progress in its transformation to become a “premium utility” under the leadership of CEO Rod West. It delivered impressive Q1 results with adjusted net earnings surging 39% year over year, reflecting improved operational execution and strategic focus.
The transformation focuses on achieving enhanced customer outcomes, fostering community engagement, and improving operational efficiency. Key initiatives include implementing a new CRM system, which has already improved the customer experience, although full cost savings remain unrealized.
Management is actively addressing regulatory investigations in Missouri, Arkansas, and New Hampshire related to customer service and billing issues, crucial for maintaining compliance and operational licenses.
Recent regulatory wins include new rate approvals in New Hampshire and an extended test year for Missouri rate cases, enabling capital investment recovery through rate filings. The company’s regulated utility framework provides defensive characteristics through predictable revenue streams and regulatory oversight.
Strategic portfolio optimization continues with ongoing evaluation of the Hydro assets, where any divestiture must meet value-accretive criteria. Management plans to provide multi-year earnings per share guidance for 2025-2027, as well as longer-term strategic positioning updates, later this year.
While regulatory risks and customer service challenges persist, Algonquin’s focused utility strategy, improving financial metrics, and regulatory progress position it for sustainable value creation as the premium utility transformation unfolds.
