North West Co. Inc. 

(TSX:NWC, OTC:NWTUF)

Dividend Yield: 4.3%

Recent Price: C$29/US$22

Fair Value: C$32/US$24

The North West Company is a retailer to underserved rural communities and urban neighborhood markets in northern and western Canada, rural Alaska, the South Pacific and the Caribbean. Its stores offer a range of products and services, with an emphasis on food.

The share price was hurt by recent below-par quarterly results, caused by a one-off jump in employment costs and some softness from Canadian stores. Capital spending to revamp42 high-profit-potential stores is also temporarily depressing free cash flow and dividend growth.

However, North West has a long track record of operating successfully in its core areas. Key financial metrics, including profit margins and returns on equity, are considerably better than the industry averages; cash flow remains adequate; the balance sheet is strong; and the dividend yield attractive at 4.3%.

Innvest REIT 

(TSX:INN-U, OTC:IVR.F)

Dividend Yield: 7.6%

Recent Price: C$5.23/US$3.99

Fair Value: C$6.31/US$4.83

InnVest REIT is one of the top Canadian hotel landlords, with such well-known brands as Fairmont, Comfort Inn and Delta in the portfolio. Management and board changes in 2014 and 2015 resulted in improved corporate governance, the sale of underperforming properties and the refurbishment of a considerable portion of the portfolio.

Apart from Alberta, where lower energy prices are depressing economic activity, the business environment for hotel operations in Canada remains positive, with solid growth reported industrywide in 2015 and further growth expected in 2016. The weak Canadian dollar is boosting tourism, with overnight visits from the US increasing by 8% in the first 11 months of 2015 and all international visitors increasing by 7%.

Although the company has high debt, the balance sheet and financial charges coverage improved during 2015, while the dividend payout ratio declined to a more comfortable level. This stock is an opportunity with considerable upside potential but not without risk.

West Jet Airlines 

(TSX:WJA, NYSE:WJAVF)

Dividend Yield: 3.0%;

Recent Price: C$20/US$15

Fair Value: C$23/US$17

WestJet Airlines is one of the top low-cost airlines in North America, with operating and financial metrics among the industry’s best. Despite delivering record profits in fiscal 2015, a poor result for the final quarter as well as a negative outlook for the first quarter of 2016 resulted in a sharp sell-off of the stock.

Investors are concerned about airline capacity growth at a time when the Canadian economy is exhibiting signs of weakness, especially in the energy-producing provinces. However, management is taking action to move capacity away from the depressed Alberta market to regions with stronger growth dynamics. The company reports strong demand for newly launched routes to and from the UK as international tourists take advantage of the weaker Canadian dollar.

The short-term outlook for the business is unfavorable, but its sound long-term track record of profitable growth good cash flow and a strong balance sheet indicate that better days will come again. The stock had a nice bounce over the past few weeks but remains undervalued and offers a safe 3.0% dividend yield.

K-Bro Linen Inc.  

(TSX: KBL, OTC: KBRLF)

Dividend Yield: 2.8%

Recent Price: C$44/US$34

Fair Value: C$47/US$36

K-Bro Linen announced below par results for the final quarter of 2015, with earnings per share down 37% versus the previous year. For the full year, earnings per share dropped 12% while the dividend rose 1%.

The poor result is partly explained by a 15% jump in fourth-quarter operating costs mostly associated with the commissioning of a new C$36 million laundry plant in Regina, Saskatchewan. The company also increased its share count by 12%, diluting per-share results.

The company has an excellent long-term track record of stable and profitable business operations. We look forward to a strong recovery in profit growth in 2016 followed by solid growth in 2017, with consensus estimates now indicating 32% growth in earnings per share between 2015 and 2017.

This is a stable if unexciting business that rarely offers the opportunity to invest at a discounted price. Investors should use price weakness to buy K-Bro below our fair value estimate of C$47 or US$36.