Investors looking to build long-term wealth often turn to cheap or undervalued dividend stocks. This strategy allows them to benefit from both high dividend yields and potential capital gains as equity markets rebound. Companies that maintain strong fundamentals typically sustain dividend payouts across market cycles and consistently increase dividends over time, resulting in a higher effective yield for shareholders. Here are three such cheap TSX dividend stocks that investors can consider buying today.
Enerflex (TSX:EFX)
Enerflex is an energy infrastructure company that offers an annual dividend of $0.10 per share, translating to a yield of 1.3%. The company operates in two business segments: Energy Infrastructure and After-Market Services. Its recurring revenue from these segments generates predictable cash flows. Enerflex’s Engineered Systems business has also secured $322 million in new orders in Q2, including energy-transition-based initiatives, resulting in a backlog of $1.4 billion. Additionally, Enerflex’s acquisition of Exterran is expected to boost its revenue by 76.8% to $3.14 billion in 2023. With anticipated top-line growth, Enerflex is poised to improve its profit margins significantly. Analysts project adjusted earnings per share of $0.42 in 2023, compared to a loss of $1.04 per share in 2022. The stock, currently priced at less than eight times forward earnings, trades at a discount of 60% to consensus price target estimates.
Exchange Income (TSX:EIF)
Exchange Income has been one of the top-performing stocks on the TSX over the past two decades, delivering a remarkable return of 2,600% to investors since September 2003. Despite its exceptional gains, EIF stock currently offers a juicy dividend yield of 5.4%. The company focuses on acquisitions and operates in sectors such as aviation, aerospace, and manufacturing. In Q2 of 2023, Exchange Income achieved a 19% year-over-year increase in revenue, amounting to $627 million, while its adjusted earnings before interest, taxes, depreciation, and amortization grew by 28% to $147 million. The company’s free cash flow reached $98 million, indicating a sustainable dividend-payout ratio of 57%. Currently down 16% from its all-time highs, EIF stock trades at 15 times forward earnings, making it quite cheap. Analysts predict a potential 50% surge in the stock price over the next 12 months.
Linamar (TSX:LNR)
Linamar, an automobile ancillary company, is the final undervalued TSX stock on this list. Despite a sluggish macro environment, the company achieved a 28.8% increase in sales to $2.55 billion and a 55.4% increase in earnings. Linamar’s diversified strategy proved effective, as industrial earnings tripled year-over-year in Q2, leading to overall sales growth. The company also secured new business wins, resulting in an order book of $4.5 billion at the end of the June quarter. Industrial sales experienced a 54% growth in Q2, driven by agricultural and access equipment, while mobility revenue grew by 20%. Analysts anticipate Linamar’s earnings to improve from $6.26 per share in 2022 to $9.81 per share in 2024. With a current price of seven times forward earnings, LNR stock trades at a discount of 30% to consensus price target estimates.
In conclusion, Enerflex, Exchange Income, and Linamar are three undervalued TSX dividend stocks that investors should consider buying today. These companies display strong fundamentals and have the potential to deliver both dividend income and capital appreciation in the long run.
Sources:
– Enerflex (TSX: EFX): Company website and financial reports
– Exchange Income (TSX: EIF): Company website and financial reports
– Linamar (TSX: LNR): Company website and financial reports