Yahoo Finance 3 Cheap Canadian Stocks That Offer 7% Dividend Yields
Written by Daniel Da Costa at The Motley Fool Canada
One of the best feelings as an investor is finding high-quality Canadian stocks that are cheap and you can buy and hold for the long haul. While any top-notch Canadian stock thatâs cheap can be ideal, buying dividend stocks while theyâre undervalued offers some significant advantages.
As dividend stocks sell-off in price, naturally, their dividend yields rise. Therefore, when you buy the stock while itâs undervalued, you have a higher potential to earn capital gains, as it eventually rallies back to fair value and continues growing for you.
However, you also lock in a higher dividend yield, which can earn you more passive income throughout the time you own the stock.
Therefore, seizing the opportunity and buying high-quality Canadian dividend stocks while they are cheap is one of the best ways to set yourself up for long-term investing success. Here are three of the top Canadian dividend stocks to buy while theyâre cheap, each offering a yield of at least 7%.
A top Canadian telecom stock with a significant dividend yield and cheap valuation
Telecom stocks are often some of the best passive income generators you can buy due to their consistent ability to generate billions in cash flow and the essential services they provide. Thatâs why, with Telus (TSX:T) trading off its highs and offering a yield of roughly 7%, itâs easily one of the best Canadian dividend stocks to buy while itâs cheap.
The stock is one of the most reliable passive income generators in Canada, has a sustainable dividend, and is aiming to continue its impressive dividend growth streak.
In fact, in each of the last five years itâs increased its dividend twice annually and its total dividend has increased by over 33%. Thatâs an insane increase in income from such a reliable investment in just five short years.
Therefore, while itâs cheap and trades off its highs, itâs certainly one of the best Canadian dividend stocks to buy now.
Two top royalty stocks
In addition to Telus, two more top Canadian dividend stocks to buy while theyâre cheap are Pizza Pizza Royalty (TSX:PZA) and Freehold Royalties (TSX:FRU).
Royalty stocks are some of the best dividend stocks because these businesses are constantly generating significant cash flow and plan to pay most of their earnings back to investors through their dividends.
For example, Pizza Pizza, which offers a current yield of 7.1%, earns a royalty on all the sales done at Pizza Pizza and Pizza 73 locations across Canada. Therefore, because it has no capital expenditure (CAPEX) obligations and very few expenses, the majority of the revenue Pizza Pizza earns in a given month or quarter is returned to investors.
For example, over the last four quarters, Pizza Pizza has earned $40.7 million in revenue. Meanwhile, after paying all expenses, including interest and taxes, Pizza Pizzaâs net income was $31 million. Of that $31 million, $30.8 million was paid back to investors through dividends since Pizza Pizza aims to keep its payout ratio right around 100%.
This business model not only makes Pizza Pizza ideal for dividend investors, it also makes the stock much easier to understand and predict, since its expenses are minimal and its national sales donât fluctuate very much quarter over quarter and year over year.
Therefore, while itâs cheap and offers a compelling dividend yield, Pizza Pizza is certainly one of the best Canadian dividend stocks to buy now.
Freehold, on the other hand, has many similarities to Pizza Pizza. It earns a royalty on all the oil and gas produced on its land by other energy companies.
In addition, it also has essentially no CAPEX requirements either, allowing it to earn significant free cash flow each quarter and pay a significant dividend. That dividend has a yield of roughly 7.5% today. However, unlike Pizza Pizza Freehold doesnât keep its payout ratio at 100%.
Since sales can fluctuate more, especially in the energy sector, Freehold typically keeps its payout ratio at roughly 60%. This ensures it remains sustainable while also building up a cash position for Freehold to eventually use to acquire more land and expand its operations.
So, if youâre looking for cheap Canadian dividend stocks to buy now, Freehold is undoubtedly one of the best you can consider.
The post 3 Cheap Canadian Stocks That Offer 7% Dividend Yields appeared first on The Motley Fool Canada.
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Fool contributor Daniel Da Costa has positions in Freehold Royalties. The Motley Fool recommends Freehold Royalties and TELUS. The Motley Fool has a disclosure policy.
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