Undervalued dividend stocks trading at a cheap valuation offer investors an opportunity to benefit from a higher yield as well as long-term capital gains. Historically, dividend-growth stocks trading at attractive multiples outpace the broader markets while allowing you to create a passive stream of recurring income.
Here are three such cheap Canadian dividend stocks you can buy in September 2023.
Magna International stock
Valued at a market cap of $22 billion, Magna International (TSX:MG) designs, develops, and manufactures components, assemblies, systems, subsystems, and modules for OEMs (original equipment manufacturers) of vehicles and light trucks.
Down 38% from all-time highs, Magna International pays shareholders an annual dividend of $2.50 per share, indicating a forward yield of 3.2%. Its dividend payouts have increased by 14.4% annually, which is quite exceptional for an auto ancillary company.
Despite a sluggish macro economy, Magna International recorded sales of $11 billion in the second quarter (Q2), an increase of 17% year over year. Magna attributed higher global production and the launch of new programs to its top-line growth.
Priced at 0.38 times forward sales and 10.7 times forward earnings, Magna International stock trades at a discount of 24% to consensus price target estimates. Comparatively, its adjusted earnings are forecast to rise by 37% annually in the next five years.
One of the cheapest TSX bank stocks, EQB (TSX:EQB) is priced at 7.3 times forward earnings. It pays investors an annual dividend of $1.52 per share, indicating a yield of 2%. Despite the cyclicality associated with the banking sector, EQB has raised dividends by 14% annually in the last 15 years.
EQB reported record earnings in Q2 due to portfolio growth, margin expansion, higher interest revenue, and efficiency improvements. It expanded its customer base to 367,790 while engagement rates remained robust at 51%.
EQB explained it is positioned for growth in 2023, as it continues to expand customer offerings such as free ATM cash withdrawals, cashback rewards on card purchases, and lower foreign exchange fees on international purchases.
Analysts expect company earnings to rise by 20% annually in the next five years and forecast EQB stock to surge 25% in the next 12 months.
Exchange Income stock
The final cheap dividend stock on my list is Exchange Income (TSX:EIF), which offers investors a tasty dividend yield of 5.3%.
Exchange Income is a diversified, acquisition-oriented company focused on opportunities in segments such as aviation, aerospace, and manufacturing.
In Q2 of 2022, Exchange Income reported revenue of $627 million, an increase of 19% year over year. Comparatively, its adjusted earnings before interest, tax, depreciation, and amortization grew 19% to $147 million.
Exchange Income has a payout ratio of 57%, which is quite sustainable, providing the company with enough room to target accretive acquisitions and increase dividends further. EIF stock pays investors a monthly dividend of $0.21 per share, and these payouts have risen by 4.2% annually in the last 18 years.
Priced at 14.3 times forward earnings, EIF stock is forecast to surge 40% in the next 12 months. Analysts also expect adjusted earnings to rise by 11.5% annually between 2022 and 2027.
Before you consider Exchange Income Corporation, you’ll want to hear this.
Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in August 2023… and Exchange Income Corporation wasn’t on the list.
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See the 5 Stocks
* Returns as of 8/16/23
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