Love Value Stocks? 2 That Are Screaming Buys in May 2024

Patience can pay off by investing in these two value stocks with nice dividends and the potential to turn around.

| More on:

Who doesn’t love value stocks – those that are perceived to be cheaper than what they’re intrinsically worth? If these stocks were to revert to more normalized valuations, investors could book some nice capital gains.

Here are some top value stocks that pay out dividends so investors can get paid to wait.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS) has been a disappointing stock for some time compared to its big Canadian bank peers. For example, over the last five years, the BMO Equal Weight Banks Index ETF delivered total returns of 57% for investors compared to Bank of Nova Scotia’s return of only 22%, according to data from YCharts.

BNS Total Return Level Chart

BNS and ZEB Total Return Level data by YCharts

From observing valuation metrics like the price-to-book and price-to-earnings (P/E) ratios, Bank of Nova Scotia stock appears to be relatively cheap, as shown in the chart below.

BNS Price to Book Value Chart

BNS Price to Book and P/E Value data by YCharts

If the bank’s international strategy plays out over the longer term, earnings growth could resume, resulting in higher valuation multiples. In the meantime, at $65.59 per share at writing, the value stock offers a juicy dividend yield of close to 6.5%. Valuation normalization over the next five years could result in total returns of more or less 14% in the value bank stock.

Rogers Communications

Another stock that looks cheap is Rogers Communications (TSX:RCI.B). The big Canadian telecom stock has been trading in roughly a sideways range since the 2020 pandemic. That said, since it peaked at north of $74 per share in April 2022, the stock only made lower highs, which is not a good sign technically. Approximately $48 seems to be the technical base. If it breaks below that point, more pressure could come for the value stock in the short term.

At $53.64 per share at writing, the value stock trades at a P/E of about 11.5 based on adjusted earnings, whereas it normally trades as high as 15 times. At the recent price, its dividend yield of 3.7% is not bad. At fair value, the stock should be worth about $70 today for an upside of about 30%.

Surely, rising interest rates since 2022 has been one of the factors that is weighing on the stock. Higher interest rates mean a higher cost of capital and slower growth. If interest rates were to fall in the future, the dividend stock could see a nice boost in its valuation.

Big Canadian telecoms are also subject to a regulatory crackdown as Canada is among the most expensive for wireless rates compared to the rest of the world.

Investor takeaway

It is anyone’s guess if or when value stocks will experience normalization of their valuations and result in hefty price gains for investors. However, at least for these dividend stocks, they offer nice dividends for the wait. So, if investors have some extra cash lying around and seek to target higher long-term return prospects, they can consider putting a portion of their money in value stocks that pay nice dividends and have the potential of turning around.

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 Kay Ng has positions in Bank of Nova Scotia and Rogers Communications. The Motley Fool recommends Bank of Nova Scotia and Rogers Communications. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »