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Got $5,000? Buy and Hold These 3 Value Stocks for Years

Image source: Getty Images
Image source: Getty Images

Written by Kay Ng at The Motley Fool Canada

If you have an extra $5,000 on hand, you might consider putting some in value stocks that pay good income. Check out these three interesting ideas.

Manulife is still a value stock

Wow! Manulife (TSX:MFC) stock just experienced a breakout. A few months ago, it was trading at the $23-26 range. It is up about 30% from that level. And get this — at the recent price of $32.50 per share, it is still a value stock trading at a blended price-to-earnings ratio (P/E) of approximately 9.3. This remains a low P/E for its anticipated earnings-per-share growth rate of roughly 7% over the next few years.

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Manulife is an international life and health insurance company that has kept its adjusted earnings per share stable or growing every year since 2012. This is a pretty decent record. Later, in 2014, when management was sure that the business had turned around after the global financial crisis of 2007-2008, it began increasing its dividend.

Its 10-year dividend-growth rate of 10.9% is nothing to sneeze at, as it roughly 2.5 times shareholders’ dividend income in the period. It currently offers a nice dividend yield of 4.9%.

Grab a 6.6% dividend from Bank of Nova Scotia

Like Manulife, Bank of Nova Scotia (TSX:BNS) is also a value stock in the financial services sector. However, the international bank hasn’t started turning around yet. In fact, it has been in a downtrend since peaking in early 2022.

Stock price follows earnings. Its revenue has remained resilient and growing over the last few years. Unfortunately, it got hit by higher costs, which weighed on earnings. Particularly, in the last fiscal year, its interest expense jumped $23 billion. Additionally, its non-interest expense climbed 12% to $19 billion.

Earnings were further pressured by the provision for credit losses of 2.5 times year over year, as the bank expects a higher percentage of bad loans in a general environment of higher interest rates and inflation.

What’s amazing is that even with all the negative pressures, Bank of Nova Scotia’s earnings still covers its dividend, although its payout ratio is higher than the normal range of about 50%. This fiscal year, its payout ratio is estimated to be around 65%. At the recent price of $64 per share, the bank stock trades at about 9.8 times adjusted earnings. It offers a rich 6.6% dividend yield and the potential for a multi-year turnaround.

RioCan REIT offers value and monthly income

RioCan REIT (TSX:REI.UN) is another value stock that’s out of favour. The retail real estate investment trust (REIT) stock is still in a downtrend after it fell from grace during the pandemic market crash in 2020. To be clear, the stock did have a run-up after the market crash. From the bottom in the $14 range, it climbed to the $25 level for upside of about 78%. Here’s another chance to buy the stock on the cheap and wait for potential multi-year price appreciation while receiving good monthly income.

Its resilient portfolio of income-producing real estate properties maintains a high committed occupancy rate of 97.4%. For the retail properties alone, the committed occupancy is even higher at 98.4%, which RioCan noted is 1.2% higher than the pre-pandemic levels. In 2023, for the third year in a row, the REIT experienced same-property net operating income growth target of 3%. Last year, it was 4.8%.

For all we know, the REIT units could stay pressured until interest rates start falling. In an interest rate cut environment, it would have a higher chance of returning to the $25 range again. At $18.67 per unit at writing, it offers a cash distribution yield of close to 6%.

The post Got $5,000? Buy and Hold These 3 Value Stocks for Years appeared first on The Motley Fool Canada.

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Fool contributor Kay Ng has positions in Bank of Nova Scotia and RioCan Real Estate Investment Trust. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.

2024