Dividend stocks are an excellent source of stable passive income. These companies will return a portion of their profits to their shareholders regularly as dividends. Given their solid financials and consistent payouts, these companies are less prone to market volatility. Against this backdrop, let’s examine two undervalued Canadian dividend stocks that are ideal for investors with a longer horizon.
Source: Getty Images
Riocan Real Estate Investment Trust
RioCan Real Estate Investment Trust (TSX:REI.UN) owns and operates 177 properties across Canada, with a net leasable area of approximately 32 million square feet. Amid solid leasing demand, the Toronto-based REIT leased one million square feet of space during the quarter, including 0.2 million square feet of new leases. Amid these leasing activities, the company’s occupancy rate stands at 98%. Additionally, the company experienced a 3.6% increase in its commercial same-property net income, while its blended leasing spread improved from 14% to 17.5%. Amid these solid operating performances, its FFO (funds from operations) per unit grew 8.9% to $0.49.
Moreover, RioCan REIT has a solid developmental pipeline of 48.3 million square feet of properties, with 0.9 million square feet under construction and three million square feet of applications submitted. At the end of the first quarter, the company’s liquidity stood at $1.4 billion, thereby positioning it well to fund its growth initiatives. Meanwhile, the company is monetizing its RioCan Living residential rental portfolio and has signed an agreement to sell a 50% interest in four of its properties. These sales, which the company expects to close this quarter, could generate gross sales proceeds of $197.3 million.
Furthermore, the company’s RioCan Living residential rental portfolio comprises 13 income-producing properties and two properties in the development stage, valued at approximately $1.0 billion. The company’s management expects to complete the sales of these properties over the next 12 to 24 months. Considering its growth prospects and improving financial position, I expect RioCan REIT to continue rewarding its shareholders with healthy dividends. Its current monthly payout of $0.0965/share translates into a healthy forward dividend yield of 6.47%.
However, RioCan REIT has underperformed the broader equity markets this year, with returns of 1.1%. Its valuation looks attractive, with its NTM (next-12-month) price-to-earnings multiple at 14.7. Considering all these factors, I believe RioCan REIT would be an ideal buy at these discount prices.
Bank of Nova Scotia
Another undervalued stock ideal for long-term investors is Bank of Nova Scotia (TSX:BNS), which has paid uninterrupted dividends since 1833. The company offers a range of financial services across more than 20 countries. Given its diversified revenue streams, the company’s cash flows are less prone to market volatility, thereby allowing it to pay dividends consistently. The Toronto-based financial services company has also raised its dividend by an annualized rate of 5.6% for the last 10 years, while its forward dividend yield currently stands at 5.88%.
Moreover, BNS is strengthening its business in the North American region while scaling back its operations in Latin America to drive profitability. It recently acquired a 14.9% stake in KeyCorp for US$2.8 billion, providing it with a cost-effective and low-risk means to deploy its capital in its priority market. On the contrary, it is working on transferring its banking operations in Costa Rica, Colombia, and Panama to Davivienda, in exchange for a 20% stake in the combined entity. The company’s management expects to complete the transaction by the end of this year, which could reduce its common equity tier-one ratio by 10-15 basis points. Furthermore, in May, BNS management also approved the repurchase of 20 million shares over the next 12 months.
Considering all these initiatives, I believe BNS would continue to pay dividends at a healthier rate. Meanwhile, the company has lost over 3% of its stock value this year and trades at an attractive NTM price-to-earnings multiple of 15.7, making it an attractive investment opportunity.
