Dividend stocks are a must for any balanced portfolio, as these companies provide consistent payouts and stabilize your portfolio. Given their regular payouts, these companies are less prone to broader market fluctuations. Additionally, investors can reinvest these regular dividend payouts to earn superior returns. Meanwhile, dividend stocks have also historically outperformed non-dividend-paying stocks.
Against this backdrop, let’s look at three undervalued dividend stocks that investors with a longer horizon can buy now.
Source: Getty Images
Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) is an oil and natural gas producer that operates a diversified and balanced asset base. Its effective and efficient operations, large, low-risk, and high-value reserves, and lower capital reinvestments have led to a lower breakeven oil price. Therefore, the company enjoys healthy cash flows and has raised its dividend consistently. Over the last 25 years, the company has raised its dividends uninterruptedly at an annualized rate of 21% and currently offers a juicy forward dividend yield of 5.36%.
Further, the Calgary-based energy company has the largest crude oil and natural gas reserves in Canada, with a total proved reserve life index of 32 years. Additionally, the significant portfolio of these reserves is high-value SCO (synthetic crude oil), light crude oil, and NGLs (natural gas liquids). Moreover, the company continues to strengthen its production capabilities through capital investments and has planned to invest over $6 billion this year.
Meanwhile, analysts are predicting the supply disruptions due to the Russia-Ukraine war and geopolitical tensions in the Middle East to support oil prices this year, which could benefit oil-producing companies, such as CNQ. Along with these favourable factors, CNQ’s solid financial position and healthy cash flows would allow it to continue paying dividends at a healthier rate. Meanwhile, the company currently trades at around a 16% discount compared to its 52-week high, while its NTM (next-12-month) price-to-earnings multiple stands at 14.4, making it an excellent long-term buy.
Telus
After a challenging couple of years, Telus (TSX: T) has witnessed healthy buying this year, with its stock price rising by 18.7%. Healthy quarterly performances and lower interest rates have improved investors’ sentiments, thereby supporting its stock price growth. Despite the recent increases, it is still trading at over 35% lower compared to its 2022 highs. Also, its NTM price-to-sales multiple stands at an attractive 1.6.
Given their recurring revenue streams, telecommunication companies, including Telus, enjoy healthy cash flows, thereby allowing them to pay dividends consistently. Telus has raised its dividends 28 times since May 2011, while its forward dividend yield stands at a juicy 7.46%.
Moreover, the demand for telecommunication services continues to rise amid the digitization of businesses, growth in remote working and learning, and increased usage of artificial intelligence. Amid the growing addressable market, Telus has planned to invest $70 billion over the next five years to strengthen its network infrastructure. Its other growth business segments, Telus Health and Telus Agriculture and Consumer Goods, are also witnessing healthy growth. Considering all these factors, I believe Telus could continue paying dividends at a healthier rate.
Northland Power
Northland Power (TSX: NPI) is another dividend stock that looks attractive at these levels, with the company trading 15.1 times analysts’ projected earnings for the next four quarters. The Toronto-based energy company operates a diverse portfolio of clean energy assets with a total power-producing capacity of 3.4 gigawatts. The company earns around 90% of its revenue, selling the power generated from its facilities through long-term PPAs (power-purchase agreements). The weighted average life of these agreements stands at 15 years. These agreements shield its financials from price fluctuations, thereby providing revenue and cash flow stability. Amid these healthy cash flows, the company currently offers a monthly dividend payout of $0.10/share, translating into a forward dividend yield of 5.3%.
Moreover, NPI has 2.2 gigawatts of power-producing facilities under construction, which would become operational in the coming years. Amid these growth initiatives, the company expects its adjusted earnings before interest, taxes, depreciation, and amortization to grow at an annualized rate of 7-10% through 2027. The company could also benefit from the increased transition towards clean energy.
