Canadian stocks continue to struggle slightly in 2015 as the S&P/TSX Composite Index is down over -7.5% as of November. Part of the continued downward pressure on Canadian stocks is due to the fact that the price of oil remains depressed, and the outlook is not encouraging for oil-producing countries such as Canada. The price of oil continues to trade in a $10 range between $40 and $50 a barrel, where it has largely traded since the end of July. To make matters more difficult for the oil-producing nation, oil prices are not forecast to rebound any time soon.
As of November 2015, the consensus between analysts and oil companies seems to be that oil prices could remain low until 2018. As a result, the bearish outlook on oil and other commodities has helped push the Canadian dollar down nearly -11% year to date. While Canada may be facing some issues within its oil industry, the country is not as reliant on oil as some other countries, which gives the impression that Canada’s sell-off could be overblown. Investors should continue reviewing solid companies with stable fundamentals and even some dividend income when planning to invest in Canadian stocks. The following are three Canadian dividend stocks worth a look.
Canadian Natural Resources Limited
Canadian Natural Resources Limited (NYSE: CNQ) is an independent oil and gas company that focuses on oil and natural gas acquisition, exploration, production, development and marketing. CNQ has proven reserves for crude oil, bitumen, liquefied natural gas and synthetic crude oil of 4,511 million barrels. Additionally, the company has another 3,024 million barrels of probable crude oil, bitumen, liquefied natural gas and synthetic crude oil. While the stock has suffered in 2015, down over -23% year to date, there is long-term value in CNQ's stock.
The company is a large cap with a market cap of $25.38 billion and a current dividend of 3.01%. Price to earnings (P/E) comes in at 21.11; forward P/E is at 47.20; price to book (P/B) comes in at 1.18; and debt to equity (D/E) is at 0.58. Overall, oil companies are not going to see a “straight line” recovery. Rather, it is going to take some time to iron out the supply and demand issues that have suffocated the price of oil. While the price of oil could be in for a few years of depressed prices, Canadian Natural Resources Limited is worth a look for long-term investors who are willing to be paid while they wait for the oil industry to recover.
The Bank of Nova Scotia
The next Canadian dividend stock is the Bank of Nova Scotia (NYSE: BNS). The bank operates a wide variety of traditional banking services for businesses and individuals, ranging from bank accounts to loans, mortgages and wealth management services. The Bank of Nova Scotia has a very strong presence in Canada and internationally. Looking at its international presence, it has 3,000 branches and 7,700 automated banking machines (ATMs) in Latin America, Central America, the Caribbean and Asia. The bank’s international exposure could continue to help drive growth and earnings. As of November 2015, BNS is down over -13% year to date, as it has fallen with the rest of Canadian equities.
Luckily for investors, the drop in the Bank of Nova Scotia's shares has created a bit of an undervalued dividend play. The $56.58 billion bank has a 4.49% dividend yield and a hold rating from analysts. P/E is at 11.54, and price to forward earnings is impressive at 10.29. P/B comes in at 1.51; price to cash is undervalued at 0.23; and price to free cash flow is very impressive at 3.09. Additionally, the bank has limited debt, as seen with a D/E of 0.13. Overall, the Bank of Nova Scotia is an excellent option for investors looking for an undervalued dividend play. Not only does the bank display strong financial health, as can be seen with limited debt, strong free cash flow, massive cash on hand and a profit margin of 33%, but the stock is also a high-yielding dividend play.
Domtar Corporation
Domtar Corporation (NYSE: UFS) is the smallest of the three companies on this list with a market cap of $2.63 billion. Domtar specializes in paper and paper products within two business segments: pulp and paper, and personal care. The pulp and paper segment specializes in all kinds of paper, ranging from the traditional printing paper to textbooks, catalogs, food packaging, thermal printing, laminated paper and other treated paper options. In the personal care segment, the company sells baby and adult diapers, washcloths, underwear, home care products, long-term care, pads and more. Despite its size and industry, Domtar Corporation is outperforming in 2015, up 6.57% year to date.
Although it is in the black for 2015, UFS is definitely undervalued and could present an opportunity to the more aggressive value investor. The company has a dividend yield of 3.88% and is rated a hold by analysts. P/E is at 6.26, and forward P/E is at 12.81. Price to sales is undervalued at 0.48; price to book is undervalued at 0.95; price to cash comes in at 12.69; and price to free cash flow is very impressive at 9.77. Furthermore, the company has D/E of 0.49, signifying limited debt. Overall, UFS is an interesting option for investors when considering its small-cap size, discount to book value, impressive cash flow and dividend.
Investors may be overestimating the allocation and exposure of Canada’s economy to the price of oil. Canadian stocks are off in 2015, and the Canadian dollar is performing even worse; however, there are some decent valuations within the Canadian equities space that could be worth a look. Canadian Natural Resources Limited, the Bank of Nova Scotia and Domtar Corporation are three Canadian dividend stocks that investors could review for sizable returns north of the border.
