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Here’s an end-of-year blowout sale across a few TSX stocks! They’re cheap now for a variety of reasons, but if you have an investment horizon of three to five years, you should become wealthier by diversifying your money across these picks.
A cheap retailer with a decent dividend
Canadian Tire (TSX:CTC.A) stock has been beaten down over 21% this year. This is due to a number of reasons, including higher inflation and operating expenses and the fact that it primarily sells durable goods.
As an example of a higher operating expense, year to date (YTD), the retailer saw its selling, general, and administrative expenses rising 9.2% year over year to $3.02 billion. So, despite retail sales rising 7.3% in the period, its diluted earnings per share still declined 14.8% to $8.59.
Durable goods simply don’t sell as well during higher inflationary environments. Consumers delay these purchases if they can help it because they have more urgent spending such as rent/mortgage and groceries. Additionally, many economists believe we’ll enter a recession next year. This also doesn’t bode well for the sale of durable goods.
At about $142 per share at writing, the retail stock trades at below 8.4 times next year’s earnings. Because of low expectations of earnings next year, it trades at a low valuation versus its historical levels. This is a recessionary-level bargain!
The value stock’s trailing 12-month (TTM) payout ratio is about 30%. Still, Canadian Tire instilled investor confidence by increasing its quarterly dividend by 6.2% this month. Because of the correction in the stock, it now offers a respectable dividend yield of 4.85%.
A year-end blowout sale is also seen at some of the big Canadian bank stocks. For instance, Canadian Imperial Bank of Commerce (TSX:CM) is a fabulous buy now, offering a juicy dividend yield of over 6%. Investors can park long-term capital here and expect stable dividend growth and price appreciation over time.
Like Canadian Tire, CIBC pays an eligible Canadian dividend that’s favourably taxed in non-registered accounts. In fact, if you’re in a low tax bracket, you may pay zero taxes on your dividend income.
Of course, the bank stock is also pressured by the upcoming recession next year and a potentially higher-risk housing market, as interest rates have gone up.
The value stock has declined 24% this year. At $55.84 per share, CIBC stock trades at approximately 8.1 times next year’s earnings. Its TTM payout ratio is sustainable at 49%.
A resilient growth stock
Alimentation Couche-Tard (TSX:ATD) is a very well run company. The retail stock is actually 16% higher YTD, which is nice to see in a sea of blood in the stock market this year.
As a convenience store consolidator with most locations offering road transportation fuel, it is an essential type of business. Importantly, management continues to see growth opportunities organically and with acquisitions.
Its five-year return on equity of 23% is absolutely amazing and why the stock has done so well in the period, returning 14% total returns annually, which was 1.36 times the Canadian stock market returns.
At $61.49 per share, Couche-Tard is still a good value. Analysts believe it trades at a discount of 12%.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
The Foolish investor takeaway
Buying opportunities won’t last forever! The three dividend stocks, which are on sale now, provide a good mix of value, dividend, and growth that can result in decent long-term returns.