3 Depressed Income Stocks as Trading Ideas

Two of the three stocks discussed in this article can be strong turnaround ideas with short-term double-digit returns if management executes well. Right now, all three are trading at near their 52-week lows. So, investors who are looking for some excitement and income should look into them.

Entertainment Stock with a Big Monthly Dividend

At under $26 per share, Cineplex (TSX:CGX) yields about 6.7%. With a recent payout ratio of roughly 64% based on adjusted free cash flow, the yield should be safe.

Cineplex generates about 74% of its total revenues from moviegoers via their spending on movie tickets and food & drinks. The entertainment company has been investing in areas outside of the theatres, including in The Rec Room, Topgolf, Playdium, and virtual reality installations in some of its locations.

Currently, Cineplex trades at more than a 20% discount from its normal cash flow multiple. If management executes well and the investments turn out to be successful, the discounted stock can experience growth that will boost the stock price to the $35-39 level over the next one to two years for 35-51% upside, while paying a yield of nearly 7%.

Increasing Interest Rates has Depressed Many REITs

There’s increased danger of dividend cuts from real estate investment trusts (REITs) because of their inherent natures of having large debt levels from their mortgages. Additionally, they tend to pay out most of their cash flows as dividends, which makes it more dangerous if there’s any decreased demand for their properties.

That’s why you’ve seen top-tier REITs, which have properties in the best locations, including Canadian Apartment Properties REIT (TSX:CAR.UN) and Allied Properties Real Estate Investment (TSX:AP.UN), doing much better than their peers.

In the last five years, the stock of Canadian Apartment Properties REIT more than doubled from the $20 to $46 per unit, while Allied Properties has appreciated 38% and has been a much more stable stock than its peers.

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Is Cineplex a Buy for a 6.6% Yield?

Cineplex (TSX:CGX) stock has fallen +26% after reporting its Q3 results. The market probably freaked out from its net income and diluted earnings per share declines of 40.7% in Q3, which were partly due to increased overall costs.

Cineplex’s core business looks healthy as it is able to generate higher revenues from movie tickets and concession spending. Its yield of  6.6% seems safe but there are other risks in the company. popcorn at the theatre

About Cineplex

Box office revenue and concession revenues made up 73.5% of total revenues in the first nine months of the year. So, before reviewing Cineplex’s Q3 results, I thought the stock fell because those revenues declined. That wasn’t the case.

For Q3, theatre attendance increased by 2.6%, box office revenues per patron increased by 2.7%, and concession revenues per patron increased by 4% compared to the same quarter in 2017.

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The Market is Spooked Out! But You Shouldn’t Be.

The U.S. and Canadian stock markets have declined about 8% and 9%, respectively, from their 52-week highs. They’re spooked out from the Halloween month!

Let’s take a step back and be objective. The U.S. market is still about 29% higher than three years ago. The Canadian market? About 12% higher. From five years ago, the U.S. market is 52% higher and the Canadian market is 15% higher.

SPY Chart

SPY data by YCharts. The 10-year price action of SPY and TSX:XIU

You get the big picture. The stock markets go up over the long term. Historically, it has always been money-making opportunities to buy quality companies on dips. And this dip is no different if you find great businesses to be attractively priced.

Here are some North American dividend-growth stocks that I find compelling today.

Undervalued Healthcare Stock

halloween

AbbVie (NYSE:ABBV) offers a safe 4.7%. Its payout ratio of less than 50% is sustainable.

Since AbbVie was spun off from Abbott Labs (NYSE:ABT) in 2013, it has increased its dividend every year thereafter. Its four-year dividend growth rate is 13.2%. Its trailing 12-month dividend per share is 40% higher than the previous 12 months.

The spooked market has brought AbbVie back into undervalued territory. At less than US$82 per share, it trades at a blended P/E of about 11. Analysts estimate the company will grow its earnings per share by at least 12% per year for the next three to five years. Read More