To make the most out of your Tax-Free Savings Account (TFSA), you probably want to earn a nice income while waiting for price appreciation. Here are some undervalued stocks that you can consider today.
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Rogers Communications
Rogers Communications (TSX:RCI.B) has been trading in a sideways range for a couple of years. However, its earnings are solid and expected to grow. Its integration with Shaw Communications seems to be progressing well as it reported in its first-quarter results that it achieved $1 billion of annualized synergy savings one year ahead of schedule. As well, it expects to reduce the debt leverage ratio from 4.7 times to 4.2 times by the end of the year. With interest rates still high, any reduction in leverage is beneficial.
Rogers makes resilient earnings. The dividend stock can normally command a price-to-earnings ratio (P/E) that’s over 15. At $51.80 per share, it trades at a blended P/E of about 11. Assuming a fair multiple of 15, over the next five years, it could potentially deliver total returns of 13 to 15% per year with the help of its safe dividend yield of about 3.9%.
Rogers doesn’t have the habit of increasing its dividend, but its payout ratio has lowered over time as it increased its earnings, making its dividend safer.
Analysts think the stock trades at a discount of over 24%, which represents respectable near-term upside potential of 32%.
Brookfield Renewable Partners L.P.
Brookfield Renewable Partners L.P. (TSX:BEP.UN) is another stock worthy of further investigation. It’s a leader in decarbonization with operational and development expertise in the renewable energy space. The renewable energy producer is involved in hydro, wind, and solar power as well as distributed energy and storage and sustainable solutions, such as biofuel production. It has a global presence with operations in about 30 power markets across more than 20 countries.
At $34.12 per unit at writing, it offers a cash distribution yield of 5.7%. Importantly, BEP.UN has consistently increased its cash distribution every year for about 14 consecutive years with a 10-year cash distribution growth rate of 5.7%. At the recent price, analysts believe it’s undervalued by about 20%.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is a battered bank stock. It hit $80 per share in 2022 and bottomed at about $52.50 in late 2023. At writing, it has recovered to $63.56 per share, which is still 20% below its 2022 peak.
It is Canada’s most international bank, generating about 40% of its revenues from its international operations, which are primarily in Latin America (think Mexico, Peru, and Chile). The idea is to target higher growth in the international markets. However, in practice, they’re also areas of higher-risk for the bank to operate in and in which it doesn’t have leading positions. Additionally, they make the business more complicated to operate.
That said, when the underlying economies do well, it should reflect in the bank earnings as well. At the recent share price, the bank offers a mesmerizing dividend yield of almost 6.7% – the highest among its peers – and it could turn around over multiple years.
If Bank of Nova Scotia were to experience solid earnings growth on a turnaround, it could potentially deliver total returns of 13 to 15% per year over the next five years.
