2 Great Canadian Dividend Stocks That Are Too Cheap to Ignore

Economic reopening and vaccine distribution could revive consumer demand and support the corporate earnings, in turn, dividends in 2021.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors should take caution while chasing growth stocks in 2021 as the stock market is in the overvalued territory. However, investors should not miss out on top income stocks that are trading at a discount and are offering a high yield.   

I believe the economic reopening and vaccine distribution could help revive consumer demand and support the corporate earnings, cash flows, and dividends in 2021.

Here are two dividend stocks that are undervalued and offer a high yield that is sustainable in the long run.

An undervalued utility company

Capital Power (TSX:CPX) stock is looking highly attractive at the current price levels. The utility company is trading at a forward EV/EBITDA multiple of 8.4, reflecting a discount of 32.6% from its peer group average. Notably, Canadian UtilitiesFortis, and Algonquin Power & Utilities stock are currently trading at a forward multiple of 10.7, 12.4, and 14.3, respectively. 

Moreover, Capital Power’s forward P/E ratio of 16.4 is also lower than the peer group average of 19.0.

While Capital Power stock is trading at a discount, it offers a high yield of 5.7%, which is very safe. Capital Power owns diversified and high-quality power-producing assets that generate stable and growing cash flows. Its long-term power-purchase agreements and accelerated growth in renewables position it well to deliver healthy earnings growth in the future and support its dividends. 

Capital Power has raised its dividends at a compound annual growth rate (CAGR) of 7% since 2013. Further, it projects 7% growth in its annual dividend in 2021 and 5% in 2020. 

A bank trading cheap

Bank stocks are likely to outperform as the pace of economic recovery gathers steam. I believe an uptick in economic activities and global trade is expected to spur credit demand and support the upside in bank stocks. 

While Canadian bank stocks have seen strong buying over the past several months and have recovered most of their lost ground, Scotiabank (TSX:BNS)(NYSE:BNS) still looks attractive on the valuation front as it trades cheap compared to its peers. 

Scotiabank trades at a P/BV (price to book value) ratio of 1.0, reflecting a discount of about 23% from its peer group average. Notably, shares of TD Bank and Royal Bank of Canada are trading at a P/BV ratio of 1.2 and 1.7, respectively.

I believe Scotiabank remains well positioned to benefit from the recovery in demand, thanks to its exposure to high-growth and high-quality markets. The bank’s credit portfolio is likely to expand, while its deposit base is expected to sustain momentum and increase at a healthy pace. Further, Scotiabank’s bottom line is expected to improve, reflecting a year-over-year decline in the credit provisions. Moreover, easy year-over-year comparables are likely to cushion its earnings in 2021. 

While Scotiabank’s performance on profitability is projected to improve in 2021, investors could expect the bank to increase its annual dividend. Scotiabank has raised its dividends at a CAGR of 6% since 2009. Moreover, it is paying dividends since 1833. With its annual dividend of $3.60 a share, Scotiabank offers a high yield of 5.1%.

Should you invest $1,000 in Hexo Corp right now?

Before you buy stock in Hexo Corp, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Hexo Corp wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA and FORTIS INC.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Blocks conceptualizing the Registered Retirement Savings Plan
Dividend Stocks

RRSP Investors: 3 Canadian Dividend Stocks to Buy on Dips

These stocks have strong track records of dividend growth and now trade at discounted prices.

Read more »

concept of real estate evaluation
Dividend Stocks

Beyond Real Estate: These TSX Income Generators Could Deliver Superior Passive Income for Canadians

These two TSX dividend stocks could offer Canadian investors a reliable income stream and strong long-term upside, without relying on…

Read more »

Confused person shrugging
Dividend Stocks

Better TSX Dividend Stock to Own: Manulife or Sun Life?

While Sun Life stock has outpaced Manulife in the last two decades, which dividend-paying insurance giant is a good buy…

Read more »

coins jump into piggy bank
Dividend Stocks

How to Use Your TFSA to Earn $1,057/Year in Tax-Free Income

Investing $5,000 in each of these high-yield dividend stocks can help you earn over $1,057 per year in tax-free income.

Read more »

Man in fedora smiles into camera
Dividend Stocks

How I’d Build a $20,000 Retirement Portfolio With These 3 TSX Dividend All-Stars

If you're worried about returns and want to focus on dividends, these dividend stocks are the first to consider.

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

If I Could Only Buy and Hold a Single Canadian Stock, This Would Be It

Here's why this high-quality defensive growth stock is one of the best Canadian companies to buy now and hold for…

Read more »

Concept of multiple streams of income
Dividend Stocks

3 Safe Dividend Stocks for Retirees

These three Canadian stocks are ideal for retirees due to their solid cash flows, consistent dividend growth, and healthy growth…

Read more »

dividends can compound over time
Dividend Stocks

3 Canadian Market Leaders Where I’d Invest $10,000 for Sustained Performance

Market leaders like Alimentation Couche-Tard Inc (TSX:ATD) are worth an investment.

Read more »