Spring Sale
Beaten-down or oversold dividend stocks are currently offering investors a tasty dividend yield. A company’s dividend yield and its share price have an inverse relationship. So, when share prices move lower in a bear market, you can benefit from generous yields and long-term capital gains once investor sentiment improves.
While dividend payouts are not guaranteed, there are several TSX stocks that have maintained these payments across market cycles, showcasing the resiliency of their business model. I’ll look at three such oversold dividend stocks that offer yields of more than 7% that you can consider buying right now.
Enbridge stock
One of the most popular dividend stocks on the TSX is Enbridge (TSX:ENB). In the last 10 years, ENB stock has gained just 7%. However, after accounting for its dividend yield, total returns are closer to 80%.
While Enbridge is a cyclical company, its strong operational performance, and rising capital expenditures have allowed it to increase dividends each year for 28 consecutive years. As energy prices have cooled off, ENB stock is currently trading 16% below its 52-week high, increasing its forward yield to 7.1%.
In 2022, Enbridge reported earnings of $11 billion, or $5.42 per share. Despite lower commodity prices in 2023, the company forecasts cash flow between $5.25 and $5.65 per share this year. Moreover, Enbridge completed $4 billion worth of expansion projects in 2022, which should support higher cash flows, despite lower oil prices.
Right now, ENB stock trades at nine times free cash flow, which is quite cheap. With a payout ratio of 65%, the energy giant has enough room to increase dividends, lower its debt or reinvest profits in other cash-generating projects.
TC Energy stock
Similar to Enbridge, TC Energy (TSX:TRP) is a diversified energy infrastructure company. Priced at 13 times forward earnings, TC Energy currently offers you a dividend yield of 7.1%.
Despite volatile energy prices, the TSX stock has returned 11% annually to shareholders since the start of this millennium. Around 95% of its comparable EBITDA (earnings before interest, tax, depreciation, and amortization) is tied to long-term, rate-regulated contracts, making cash flows predictable.
With $114 billion in assets, TC Energy will invest another $34 billion in capital expenditures through 2028, allowing it to increase dividends between 3% and 5% annually in the near term. After adjusting for dividends, TC Energy may return over 20% to investors, given consensus price target estimates.
Diversified Royalty stock
The final TSX dividend stock on my list is Diversified Royalty (TSX:DIV), which offers a tasty yield of 8.3%. In addition to its dividends, the small-cap company is also trading at a cheap forward price-to-earnings ratio of 14.5.
It is a multi-royalty entity that focuses on acquiring royalties from multi-location businesses and franchisors in Canada, and the U.S. Diversified Royalty now has seven royalty revenue streams, and it’s forecast to increase sales by 27.5% year over year to $57.6 million in 2023.
Diversified Royalty’s asset-light business model allows the company to distribute a majority of its cash flows to shareholders via dividends each month. In addition to attractive monthly payouts, DIV stock is also trading at a discount of 35% to consensus price target estimates.
