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 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
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.
Solid Canadian Bank That Has Underperformed
Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is one of the best-valued Big 5 Canadian banks. It has underperformed its peers in the last 12 months because of its emerging market exposure. However, its dividend yield of nearly 4.9% is rock solid, as its payout ratio remains below 50%.
BNS data by YCharts. BNS greatly underperformed its peers in the last 12 months.
Precisely because Scotiabank has underperformed that it’s a great long-term buy right now. At just under CAD$70 per share, the stable bank trades at a blended P/E of about 11. It’s estimated to grow its earnings per share by about 6-7% per year for the next three to five years.
A Big Dividend and Immense Value from a Real Estate Empire
Brookfield Property Partners LP. (TSX:BPY.UN)(NASDAQ:BPY) has been down but not out. The market seems to dislike its acquisition of GGP, a retail REIT that owns about 8% of the United States’ quality retail properties.
BPY already owned 34% equity interest in the company. The retail environment is challenging, and BPY took the downturn opportunity to buy the company outright. What a patient management team!
BPY has the operating and redevelopment expertise to improve these properties (where appropriate) to improve their returns potential. Moreover, other than a retail portfolio, it also has a core office portfolio and an opportunistic portfolio that aims for higher returns of 18-20%. So, it’s not all retail.
At US$19.22 per unit, BPY trades at about 30% below its net asset value and offers a compelling 6.5% yield. BPY has US$90 billion of assets under management; it will simply continue expanding its real estate empire around the globe while increasing its cash distribution by 5-8% per year.
Income investors should view the market selloff as a treat and buy quality dividend stocks for larger yields. Although AbbVie, Scotiabank, and Brookfield Property are undervalued, they could potentially fall lower.
That said, based on their discounted shares, there’s at least 20% upside for each of these stocks if they trade at their normalized levels again. Of the three, I believe Brookfield Property has the least downside risk in the near term (as long as interest rates don’t rise too quickly in the U.S.).
If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.Disclosure: At the time of writing, I’m long ABBV, TSX:BNS, and TSX:BPY.UN.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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