Do you prefer stocks that pay dividends you can rely on? We ran a screen with this idea in mind.
We began by screening the S&P 500 for dividend stocks: those paying dividend yields above 2% and sustainable payout ratios below 50%.
Then we screened that universe for those that appear undervalued relative to the Graham Number. The Graham Number is a measure of maximum fair value created by the "godfather of value investing," Benjamin Graham.
It is based off of a stock's EPS and book value per share (BVPS).
Graham Number = SQRT(22.5 x TTM EPS x MRQ BVPS)
The equation assumes that P/E should not be higher than 15 and P/BV should not be higher than 1.5. Stocks trading well below their Graham Number may be undervalued.
For an ‪interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.
Do you think these stocks pay sustainable dividend yields? Use this list as a starting point for your own analysis.
1. AFLAC Inc. (AFL): Provides supplemental health and life insurance. Market cap at $24.87B, most recent closing price at $53.03. Diluted TTM earnings per share at 6.07, and a MRQ book value per share value at 34.1, implies a Graham Number fair value = sqrt(22.5*6.07*34.1) = $68.24. Based on the stock's price at $52.93, this implies a potential upside of 28.93% from current levels. Dividend yield at 2.64%, payout ratio at 21.83%.
2. BB&T Corporation (BBT): Operates as the financial holding company for Branch Banking and Trust Company that provides banking and trust services to small and mid-size businesses, public agencies, local governments, and individuals in the United States. Market cap at $21.21B, most recent closing price at $30.32. Diluted TTM earnings per share at 2.55, and a MRQ book value per share value at 26.88, implies a Graham Number fair value = sqrt(22.5*2.55*26.88) = $39.27. Based on the stock's price at $30.31, this implies a potential upside of 29.57% from current levels. Dividend yield at 2.64%, payout ratio at 29.76%.
3. The Chubb Corporation (CB): Provides property and casualty insurance to businesses and individuals. Market cap at $20.47B, most recent closing price at $78.15. Diluted TTM earnings per share at 6.89, and a MRQ book value per share value at 60.98, implies a Graham Number fair value = sqrt(22.5*6.89*60.98) = $97.23. Based on the stock's price at $77.78, this implies a potential upside of 25.% from current levels. Dividend yield at 2.1%, payout ratio at 22.87%.
4. Chevron Corporation (CVX): Engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. Market cap at $222.02B, most recent closing price at $113.44. Diluted TTM earnings per share at 12.19, and a MRQ book value per share value at 67.93, implies a Graham Number fair value = sqrt(22.5*12.19*67.93) = $136.50. Based on the stock's price at $111.73, this implies a potential upside of 22.17% from current levels. Dividend yield at 3.17%, payout ratio at 28%.
5. Dell Inc. (DELL): Provides integrated technology solutions in the information technology ((IT)) industry worldwide. Market cap at $22.88B, most recent closing price at $13.17. Diluted TTM earnings per share at 1.47, and a MRQ book value per share value at 5.86, implies a Graham Number fair value = sqrt(22.5*1.47*5.86) = $13.92. Based on the stock's price at $10.88, this implies a potential upside of 27.96% from current levels. Dividend yield at 2.43%, payout ratio at 5.33%.
6. Kohl's Corp. (KSS): Operates department stores in the United States. Market cap at $9.83B, most recent closing price at $42.75. Diluted TTM earnings per share at 4.38, and a MRQ book value per share value at 26.43, implies a Graham Number fair value = sqrt(22.5*4.38*26.43) = $51.04. Based on the stock's price at $42.02, this implies a potential upside of 21.46% from current levels. Dividend yield at 3%, payout ratio at 27.54%.
7. Marathon Petroleum Corporation (MPC): Engages in refining, transporting, and marketing petroleum products primarily in the United States and internationally. Market cap at $21.8B, most recent closing price at $64.26. Diluted TTM earnings per share at 7.36, and a MRQ book value per share value at 33.83, implies a Graham Number fair value = sqrt(22.5*7.36*33.83) = $74.85. Based on the stock's price at $61.99, this implies a potential upside of 20.74% from current levels. Dividend yield at 2.18%, payout ratio at 14.81%.
8. Marathon Oil Corporation (MRO): Operates as an international energy company with operations in the United States, Canada, Africa, the Middle East and Europe. Market cap at $22.56B, most recent closing price at $31.93. Diluted TTM earnings per share at 2.55, and a MRQ book value per share value at 25.59, implies a Graham Number fair value = sqrt(22.5*2.55*25.59) = $38.32. Based on the stock's price at $32.15, this implies a potential upside of 19.18% from current levels. Dividend yield at 2.13%, payout ratio at 25.73%.
9. SLM Corporation (SLM): Provides education finance in the United States. Market cap at $8.01B, most recent closing price at $17.33. Diluted TTM earnings per share at 2.19, and a MRQ book value per share value at 9.47, implies a Graham Number fair value = sqrt(22.5*2.19*9.47) = $21.60. Based on the stock's price at $17.37, this implies a potential upside of 24.36% from current levels. Dividend yield at 2.9%, payout ratio at 21.44%.
*BVPS and EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
