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If you want to earn passive income, there are still some great bargains in the stock market today. You may need to buck the trend and look beyond the current economic challenges, but there could be a significant uptick in both passive income and capital returns. Here are four cheap Canadian stocks that pay attractive dividends and look very cheap right now.
A stock of renewable energy for growth and passive income
Northland Energy (TSX:NPI) is a Canadian leader in the development of offshore wind energy. It also has a diversified portfolio that includes a utility in Colombia and wind, solar and natural gas facilities in North America and in Europe. It now operates three gigawatts (GW) of renewable energy, but its project development backlog is almost double its current power capacity.
Today, Northland shares only trade with an EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation and amortization) ratio of 12. That’s below its 10-year average of 14.5. Likewise, it pays an attractive dividend yield of 3.23%. For growth and income, this is an attractive stock if you have a long-term investment mindset.
A utility that doesn’t get its fair value
AltaGas (TSX:ALA) operates a natural gas utility business in the United States and an integrated midstream energy business in Canada. The utility is enjoying attractive high-single-digit growth, and the midstream business has benefited from recent high energy prices.
Over the past few years, AltaGas has significantly cleaned up its balance sheet and seriously focused its operations. This has translated into more consistent and predictable earnings growth.
Although its outlook continues to improve, AltaGas is trading at a discount to its utility and midstream peers. It is trading with a Price/Earnings (P/E) ratio of 13.5 at the moment. This passive income stock pays a very attractive dividend yield of 4.6%, and it just increased its dividend (again) at the end of 2022.
A high-yield energy store
Another energy stock that continues to be very cheap is Whitecap Resources (TSX:WCP). It produces approximately 160,000 barrels of oil equivalent per day in Alberta and Saskatchewan. As with many other energy stocks, the company enjoyed a cash flow windfall thanks to high energy prices.
The company is focused on drastically reducing its debt level. Currently, it has a net debt of $1.8 billion, but when it reaches $1.3 billion in mid-2023, it plans to increase its quarterly dividend to $0.15 per share (an increase 26%).
Right now, this passive income stock is trading for a discount price of 5.3 times earnings and 5.2 times free cash flow. It pays a hefty 5.2% dividend yield, which could get much richer if it hits its debt targets in 2023.
A cheap REIT for passive income
If you don’t like energy, real estate might be an interesting asset class to consider. Many real estate stocks have fallen recently, exhibiting attractive valuations and above-average yields. European Residential Real Estate Investment Fund (TSX:ERE.UN) is intriguing for several of these reasons.
It has a large portfolio of residential properties in the Netherlands. The Netherlands has high immigration, low housing supply and limited land for development. This creates very attractive fundamentals (like high occupancy and strong growth in rental rates) for an apartment REIT.
The title is down 15% compared to last year, despite very solid results. It pays a well-hedged dividend yield of 4.7% and trades at a significant 40% discount to its net asset value. If you can be comfortable with European exposure, this is a great bargain-priced stock to buy for passive income.
