Dividend stocks are naturally more appealing when they are heavily discounted, and buying them at the right time can help you lock in a solid yield. For many investors, that time is right before or after the stock starts recovering so they can maximize the return potential by locking in the best yield possible (in that slump cycle) and getting on early in the recovery phase for maximum capital-appreciation potential.
However, some dividend stocks are worth considering even if you have missed the window.
An energy stock
Parex Resources (TSX:PXT) is currently one of the most heavily discounted energy stocks, trading down almost 41% from its five-year peak. Two reasons for this conflicting performance compared to the rest of the sector are its domain of operations (it operates almost exclusively in Colombia) and the weak production projection it made. While the brutal slump has been devastating from a growth perspective, it has beefed up the yield, currently at 10.6%.
The stock isn’t merely discounted; it’s also undervalued, considering a price-to-earnings ratio of just four. Its dividends are also quite financially sustainable, thanks to a payout ratio of just 44%. The company has also been raising its payouts for the last four years, making it attractive from a dividend-growth perspective. If you buy now and the stock makes a full recovery, you will have locked in a solid yield and enjoyed massive gains.
A REIT stock
While many real estate investment trusts (REITs) offer impressive yields, Allied Properties REIT (TSX:AP.UN) is in a league of its own with not just a double-digit yield (10.5%) but a stellar dividend history. Even though it has stopped growing its payouts and broke its aristocratic streak, the REIT is still maintaining its payouts, which is impressive considering its real estate focus (office spaces). It has also improved its funds from operations payout ratio in the last few quarters.
A heavy slump is the primary catalyst behind this impressive yield. It’s trading at a 71% discount from its five-year peak, but things might start to look up for the REIT. It’s steadily improving its financials and other metrics. The price estimate for the REIT has also improved, albeit it still remains under $20. Its dividends are reason enough to buy this discounted REIT. Still, if there is even a modest chance of a full-fledged recovery, Allied Properties will become a powerful addition to your portfolio.
Telus (TSX:T) is neither the top 5G stock in Canada nor the one offering the most generous yield. Still, it’s a promising buy from the telecom sector right now for the combination of dividends and recovery-based growth potential it offers. Like its counterparts, it is aggressively bearish and trading at a 41% discount from its five-year peak.
This has pushed its yield up to almost 8%, which is significant for an established aristocrat who has maintained its dividend-growth streak despite the troubles the telecom sector is going through. It also boasts a diversified business model and decent customer growth across multiple business domains.
Foolish takeaway
The three heavily discounted dividend stocks are maintaining their payouts despite a range of internal and external factors pushing their market value down. If you buy now, you won’t just lock in desirable yields but may also experience decent gains once the bearish catalysts are removed from the equation.