Do you consider yourself a value investor? If so, we ran a screen looking for potentially undervalued dividend stocks you may be interested in.
We began by screening for dividend stocks paying dividend yields below 3% with sustainable payout ratios below 50%. We then screened for those that have outperformed the market over the last quarter, with quarterly performance above 10%.
Finally, 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 on 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.
A Closer Look
We looked at Molson Coors Brewing Company (TAP) in more detail. The stock trades around $45 versus its 52-week range of $37.96-$46.35, up 6% in the past year. It trades with a P/E multiple of 11 times, and pays a dividend of 3%. The company's close competitor Anheuser-Busch InBev NV (BUD) trades with a multiple of 19 times. The stock is up 50% in the past year and trades around $93.81, close to its 52-week high of $94.49. The company pays a dividend of 2.9%, and has a 5-year dividend growth of 15%.
Molson reported earnings this morning of $0.69 versus consensus of $0.66. Revenues reported were $1.03 billion, lower than the consensus of $1.07 billion. Main reasons for the miss being higher taxes and marketing costs.
More importantly, the company reported free cash flow of $865 million, and cash on its balance sheet of $624 million.
Is this earnings miss a one-time event?
The List
For an interactive version of this chart, click on the image below.
Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.
1. Archer Daniels Midland Company (ADM): Procures, transports, stores, processes and merchandises agricultural commodities and products in the United States and internationally.
- Market cap at $20.52B, most recent closing price at $31.16.
- Diluted TTM earnings per share at 2.08, and a MRQ book value per share value at 28.94, implies a Graham Number fair value = sqrt(22.5*2.08*28.94) = $36.80. Based on the stock's price at $30.22, this implies a potential upside of 21.78% from current levels.
- Dividend yield at 2.25%, payout ratio at 34%. Performance over the last quarter at 24%.
2. International Bancshares Corporation (IBOC): Provides commercial and retail banking services in south, central and southeast Texas, and Oklahoma.
- Market cap at $1.34B, most recent closing price at $19.99.
- Diluted TTM earnings per share at 1.47, and a MRQ book value per share value at 21.31, implies a Graham Number fair value = sqrt(22.5*1.47*21.31) = $26.55. Based on the stock's price at $19.81, this implies a potential upside of 34.02% from current levels.
- Dividend yield at 2.1%, payout ratio at 39%. Performance over the last quarter at 11%.
3. Molson Coors Brewing Company: Distributes beer brands.
- Market cap at $8.08B, most recent closing price at $44.62.
- Diluted TTM earnings per share at 3.07, and a MRQ book value per share value at 45.39, implies a Graham Number fair value = sqrt(22.5*3.07*45.39) = $55.99. Based on the stock's price at $44.41, this implies a potential upside of 26.08% from current levels.
- Dividend yield at 2.9%, payout ratio at 36%. Performance over the last quarter at 10%.
4. The Travelers Companies, Inc. (TRV): Provides various commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals primarily in the United States.
- Market cap at $30.19B, most recent closing price at $79.99.
- Diluted TTM earnings per share at 6.3, and a MRQ book value per share value at 67.32, implies a Graham Number fair value = sqrt(22.5*6.3*67.32) = $97.69. Based on the stock's price at $78.86, this implies a potential upside of 23.87% from current levels.
- Dividend yield at 2.3%, payout ratio at 38%. Performance over the last quarter at 15%.
*EPS and BVPS 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.
