3 Canadian Stocks for Value and Income
Geographic diversification can be valuable for stock market investors. When one country is in recession, another might not necessarily be in the same condition. There are times in which stocks from other countries, such as Canadian stocks, might be more attractively valued or have better growth prospects that domestic stocks.
Investors may not realize that Canadian companies tend to trade for lower valuations than their U.S. counterparts, and many also have a higher dividend yield.
In this article, we’ll highlight three such stocks that we see as bargains from Canadian stocks.
Investors may not always think of geographical diversification for investing decisions, but Canadian stocks tend to offer lower valuations and higher dividend yields than their U.S.-based competitors. These three stocks are attractive alternatives to equivalent U.S.-based names, all with better yields than similar U.S. companies.
Canadian Stocks: Canadian Utilities Limited (CDUAF)
Our first stock is Canadian Utilities Limited, a diversified energy company based in Calgary. The company operates two core segments: Utilities and Energy Infrastructure.
The Utilities segment provides regulated electricity transmission and distribution services in Alberta, Yukon, and the Northwest Territories. It also owns 9,000 kilometers of natural gas pipelines, as well as other related assets. The Energy Infrastructure business provides electricity generation, natural gas storage, industrial water and related infrastructure development solutions.
Canadian Utilities stands out from the crowd for two reasons. First, it has a truly exemplary 48-year streak of dividend increases, a streak which is only rivaled by the best dividend stocks in the world. It is important to note that Canadian Utilities’ dividends are declared in Canadian dollars. Investors in the U.S. may see slightly different vales when translated to U.S. dollars, but the company’s ability to maintain and grow its dividend over time is nothing short of outstanding.
Second, Canadian Utilities sports a very attractive 5.1% dividend yield, which is much higher than U.S. utilities’ average yield of just over 3%. That means not only do investors get one of the best dividend increase streaks in the world, but a huge yield relative to comparable U.S. companies, and relative to the broader market.
The stock has rallied of late, and now trades just over our estimate of fair value at 17x this year’s earnings estimates. Even so, Canadian Utilities offers investors relative value to expensive U.S. utilities, a longer dividend increase streak, and a higher current yield.
The Bank of Nova Scotia (BNS)
Our next stock is from the world of financials with the Bank of Nova Scotia. The company provides a full suite of banking products and services across much of the world, including North America, parts of South America and Central America. The bank offers traditional banking products, markets services, wealth management, and corporate banking products and services.
The company trades with a $77 billion market capitalization and generates $25 billion in annual revenue. Bank of Nova Scotia traces its roots to 1832 and is headquartered in Halifax.
The stock has rallied hard since last November, gaining about 50% in the months since. While that has reduced the yield investors can achieve and increased the valuation, Bank of Nova Scotia still offers relative value to U.S. equivalents.
Shares trade today at 13.9x this year’s earnings estimate, which is in excess of our fair value estimate, which stands at just over 11x earnings. The recent, sharp rise in long-term interest rates has seen the share prices of financial stocks rise sharply, and Bank of Nova Scotia has benefited from that.
Even so, the equivalent large U.S. bank trades at higher multiples, with large U.S.-based financials trading in the range of 14x to 16x earnings following the rally.
In addition, Bank of Nova Scotia – even after a huge rally – still yields 4.5%, which is 3x the yield of the S&P 500, and about double what a basket of U.S.-based financials yields.
Overall, the value proposition for owning Bank of Nova Scotia over U.S. rivals is quite clear. The stock is cheaper and offers a much higher dividend yield.
Canadian Stocks: Enbridge (ENB)
Enbridge is an energy infrastructure company that operates through five segments: Liquids Pipelines, Gas Transmission and Midstream, Gas Distribution and Storage, Renewable Power Generation, and Energy Services.
Through these segments Enbridge provides various energy infrastructure products and services, including pipelines, terminals, gathering and processing facilities, renewable power generation, and more across North America and Europe.
We like Enbridge because it has a terrific dividend increase streak of 26 years, which is difficult to achieve in what is a volatile business due to commodity pricing. Enbridge, however, has stood the test of time, weathering various up and down cycles in energy markets, but increasing its dividend all the while.
In addition, Enbridge’s yield, even after a substantial rally in recent months, is still 7.3%. That’s nearly 5x that of the S&P 500, and is significantly higher than many U.S. based midstream peers. Enbridge, then, offers investors a better yield and much longer dividend increase streak than its U.S.-based competitors.
We also see Enbridge as having a significant runway for growth, as our expectation is for 4.5% annual distributable cash flow per share for the next five years.
On the date of publication, Bob Ciura did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.
