This Dirt-Cheap Dividend Stock Just Raised Its Payout by 18%

At a time when markets are trading at premium valuations, finding an undervalued stock with strong fundamentals can be a rare opportunity. Cheap stocks with solid cash flow and growing dividends offer a compelling mix of value and income, making them especially attractive for long-term investors. Dividend growth is a powerful signal of financial health, as it suggests a company is confident in its ability to generate sustained profits. One such stock, despite flying under the radar, just raised its dividend at an incredibly high rate, reinforcing its commitment to rewarding shareholders. For investors seeking both affordability and reliable income, this could be an exceptional opportunity in an otherwise pricey market.

Last month, MTY Food Group (TSX:MTY) announced that it was increasing its dividend by 18%, pushing its quarterly payout to $0.33 per share. The move signals confidence in its cash flow and long-term stability, especially as the company has earnings coming up in February. While the stock has struggled over the past year, trading at a modest 12 times trailing earnings, it’s an incredibly cheap buy right now. And its strong franchising model and focus on efficiency make it an intriguing option for income investors.

A Resilient business model

MTY operates a portfolio of more than 90 quick-service restaurant brands with over 7,000 locations worldwide. The majority are franchisee-operated, allowing MTY to generate revenue with relatively low operational risk. By focusing on franchising rather than company-owned stores, the business benefits from steady royalty income while keeping capital expenditures and direct operating costs low.

Despite challenges in the restaurant industry, MTY’s diversified brand lineup, which includes Jugo Juice, Mr. Sub, and Mucho Burrito, provides stability. The company has been focused on improving cash flow, and its most recent earnings report showed a 29% increase in operating cash flow, highlighting its ability to weather economic pressures. This improvement is likely a key reason why management felt comfortable raising the dividend.

Dividend growth and valuation

With the recent dividend hike, MTY now yields 2.7%, making it an appealing choice for income investors. At this rate, an investor would need to hold approximately $37,000 worth of shares to earn $1,000 in annual dividend income. While dividend increases are never guaranteed, the company’s improving cash flow suggests this trend could continue if financial performance remains strong.

MTY’s stock trades at a modest valuation compared to other restaurant stocks. While its shares are down 17% over the past year, this presents an opportunity for investors who believe in the company’s long-term strategy and see potential for a rebound.

A great option for income investors

With a strong franchising model, rising cash flow, and a growing dividend, MTY offers a compelling case for income investors to buy its stock. While it has underperformed over the past year, its efficient business structure and ability to generate steady royalty income make it a relatively low-risk investment in the restaurant sector. Investors looking for a stable dividend payer with room for future growth may find MTY an attractive option.