RBC and TD Take a Breather: 2 Undervalued Dividend Stocks to Consider

The Royal Bank of Canada (TSX: RY) and Toronto-Dominion Bank (TSX: TD) have experienced significant gains, but their valuations are now stretched.

With a combined market capitalization of $670 billion, these two stocks make up 10% of the TSX Composite Index. When they move, the index follows.

The banks' price-to-earnings (P/E) ratio is currently at 18, significantly above their long-term average of 13.

Pembina Pipeline (TSX: PPL), a top Canadian infrastructure stock, offers a higher dividend yield of 4.5% and a more diversified portfolio with contracted income of 89%. The company has a payout ratio of only 57%, generating excess cash for growth and dividend increases.

Richards Group (TSX: RIC) is another turnaround story with a low forward P/E ratio of 10 and a 4.3% monthly dividend yield. The company is transforming from a packaging distributor to a medical devices and medical disposables supplier, aiming for higher margins and economic resilience.