5 Under The Radar Dividend Studs That Would Look Great in Any Portfolio

There’s a large segment of investors who believe if you invest in large-cap stocks it’s virtually the same as buying an index fund.

This is one of those blanket statements that really grinds my gears.

Investing history is filled with stories about dominant companies that temporarily stumbled, situations that turned out to be massive buying opportunities just a few months later.

Here’s a small selection.

• In 2022 Meta Platforms (NASDAQ:META) fell more than 70% as the general tech sell-off and an ill-advised expansion into the Metaverse weighed on the stock. The stock is up some 500% off the lows.

• In December, 2018, Apple (NASDAQ:AAPL) was briefly available for 12x earnings as one of the worst downturns of the 2010s rocked equity markets across North America

• In 2003 McDonald’s (NYSE:MCD) shares fell approximately 40% from peak to trough thanks to a tepid economy and bad press from Super Size Me. Your author was too cute and didn’t take advantage of what was, in hindsight, a generational buying opportunity

• In 1963 the infamous Salad Oil Scandal rocked American Express (NYSE:AXP). Warren Buffett famously analyzed the situation, realized none of the company’s customers really cared about the scandal, and profited handsomely

There are literally thousands of these over the years. I could go on all day.

I firmly believe large cap stocks get mispriced all the time. I also think investors can build a portfolio of these types of stocks if they’re patient enough. Such a portfolio will surely have some dogs, but the winners should more than make up for them. Combine this attitude with a bias towards companies that pay solid dividends with a history of growing those payouts over time, and it’s recipe for a solid retirement fueled by dividends.

This is pretty much exactly the strategy my buddy Jim used to build a $3M portfolio, one that now spits out $136,000 per year in dividend income.

My own financial freedom fund (or, as I like to call it, the F*** You Fund) is stuffed with large cap stocks, which I mostly bought during periods of pessimism. But it also has a healthy selection of smaller companies — stocks with solid growth prospects, attractive valuations, and their own history of delivering excellent results for investors.

I disclose my portfolio and discuss buys and sells with premium newsletter subscribers, plus a whole lot more.

I spend a lot of time researching these under the radar stocks, knowing that they can be an important source of returns. I think investors who focus on just large caps do so at their peril.

Let’s take a quick look at five of these under the radar dividend studs — all of which are covered in much more detail for premium subscribers.

Finning International

Finning International (TSX:FTT) is the exclusive dealer of Caterpillar heavy equipment in Western Canada, the United Kingdom, and various South American countries. Canada is the largest part of the business, accounting for just over 50% of revenues.

Yes, heavy equipment is a cyclical business. But the company has done a nice job diversifying away from just selling new equipment. It has a robust product support business where it maintains the machines it sells. It also sells used equipment and has a equipment rental business. These ancillary businesses are growing smartly, and they’re much more dependable than the default of selling new equipment.

That’s right; Finning has successfully created a subscription business out of heavy equipment. I’m impressed.

This translates into a company that has posted solid revenue and earnings gains over the last decade. The top line is up some 63% from 2015 through 2024, and the bottom line has increased from $1.29 to $3.96 per share in that time.

That’s not all, either, The company also has a enviable record of both dividend growth and repurchasing shares, and the stock trades at a mere 10× 2024’s projected earnings.

Imperial Oil

I’m constantly amazed at how little attention Imperial Oil (TSX:IMO) gets despite it being one of Canada’s largest oil producers. Folks are way more excited about Canadian Natural Resources or Suncor.

Part of this has to do with Imperial’s largest shareholder. Exxon Mobil controls some 69% of Imperial Oil shares, a stake it has held consistently since the Standard Oil days. Imperial has a market cap of $54.9B, but once we net out the Exxon ownership stake the float is only worth about $18B. That’s still a sizable company, but it only puts Imperial in mid-cap territory.

Meanwhile, the company owns an impressive array of assets, including oil sands production with some of the lowest costs in the region, various refineries, and more than 2,000 Esso and Mobil stations across Canada.

Imperial is also known for its excellent balance sheet, sporting just over $2B in net debt versus more than $44B in assets. Balance sheets don’t get much more pristine than that, especially in the oil business.

Combine that with the company’s 29 years of consecutive dividend growth and another robust share repurchase plan, and there’s a lot to like here.

Pet Valu Holdings

Your author is a big bull on pet ownership over the long-term. Between millennials using pets as a substitute for children and boomers who want something to take care of in their empty nests, there’s plenty of demand. And as any pet owner can attest to, you’ll spend whatever it takes to make sure Fluffy stays healthy.

Pet Valu (TSX:PET) is a great way to play this trend. The company has quietly grown to become the leader in this lucrative space in Canada, amassing a network of some 800 stores from coast-to-coast. There’s potential for tons more, too.

The majority of stores are franchised, and they offer a pretty compelling investment for potential franchisees. Typically a store will pay back its initial investment in about four years. There’s also a big waiting list of potential franchisees.

I’m a big fan of franchised concepts that treat franchisees right, and Pet Value delivers here.

A slowdown in Canadian consumer spending is temporarily hurting the bottom line, but the business still has long-term growth. Shares trade at about 16x earnings with analysts expecting double digit growth to come back in both 2025 and 2026.

Primaris REIT

Primaris REIT (TSX:PMZ.un) is Canada’s largest publicly-traded owner of shopping malls, with a portfolio spanning 12.4M square feet of gross leasable space.

Primaris is the only real logical buyer of many shopping mall assets, a misunderstood form of real estate that is a quietly good business. Occupancy is up to 94%+ and many companies are realizing the power of getting their product directly in front of shoppers instead of just keeping it online. Plus these malls — which were built in the suburbs in the 1970s and 1980s — now have excellent locations.

The company has several growth paths. It can acquire shopping malls from other owners, but that’s just the start of it. These malls very often come with excess land, parking lots that can be redeveloped into residential condo towers or additional retail space. And these malls are already located to mass transit options, which further enhances their appeal to potential residential tenants.

The stock also trades at a substantial discount to the company’s stated net asset value.

Primaris offers investors a 5.8% dividend yield with a payout ratio of approximately 50% of its earnings. That’s about as secure as you’re going to find for such a high payout.

North West Company

North West Company (TSX:NWC) is a Canadian retailer that operates in remote areas of Canada, Alaska, and the Caribbean. In most markets it is literally the only store in town, which is usually a pretty enviable position.

The company stumbled pretty significantly around this point last year, posting disappointing earnings as it chose not to pass through price increases on certain items. It was taking the long-term view, telling investors that its customers simply couldn’t afford the increases at that point, and they’d be slowly passed through in the future.

A year later the stock is up 50%+ from the lows, and results have been great. The company’s most recent quarterly results saw sales increase by 4% on a year-over-year basis, with gross profits up 7.9% and net profit 22% higher on a per share basis. That’s pretty solid.

Analysts expect growth to continue, too, driven by large investments in infrastructure targeted towards Canada’s arctic region. The bottom line should increase to $3.30 per share by 2026. Free cash flow is also expected to grow smartly, increasing from a low of $66M in fiscal 2023 to an expected number of $120M in fiscal 2025.

North West Company also pays a generous dividend with a current yield of 3.4%.

The bottom line

Your author isn’t opposed to buying large cap stocks when they stumble, as evidenced by my post last week on TD Bank. If a good company has stumbled, I’m usually pretty interested.

But at the same time, I also think investors who ignore smaller companies do so at their peril. So feel free to immerse yourself in annual reports from lesser-known companies — like the ones on this list. You’ll likely find an investment opportunity or two, and if you don’t, you’ll still learn about a new business.

Do that a few times a month for a long time and after a couple of years you’ll have learned about dozens of businesses and likely purchased at least a few for your portfolio, too.

Or you can take the lazy way out. Sign up for our premium newsletter — which is chock full of analysis of lesser-known Canadian dividend stocks, plus a whole lot more — and let Nelson do the work for you. Just $200 per year, less than the price of your Netflix subscription or daily coffee. It’s a small cost that will quite literally start paying dividends immediately. Upgrade today!