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If you identify with investors looking for undervalued dividend stocks during earnings season, this list might be of interest to you. Given the difficult macro environment, the challenging credit markets, and the low interest rate environment, it is tough to find attractive dividend plays.

To create the list below we began by screening for stocks that pay a dividend of at least 2% but not more than 5% with sustainable payout ratios below 50%. This allowed us to focus on the better credit quality names. 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.

The List

Compare average analyst ratings for the stocks listed below. For an interactive version of this chart, and more tools, 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. The Allstate Corporation (ALL): Engages in the personal property and casualty insurance, life insurance, retirement, and investment products businesses primarily in the United States.

  • Market cap at $23.93B, most recent closing price at $50.11.
  • The company is expected to report earnings on May 1st, 2013.
  • Dividend yield of 2%, payout ratio of 19%
  • Diluted TTM earnings per share at 4.68, and a MRQ book value per share value at 42.97, implies a Graham Number fair value = sqrt(22.5*4.68*42.97) = $67.27. Based on the stock's price at $49.32, this implies a potential upside of 36.39% from current levels.
  • ALL has recorded great gains over the last quarter, when compared to its closest competitors. The stock returned 20.46% since 1/8/13, better than The Travelers Companies, Inc. (TRV) and ACE Limited (ACE), which returned 16.42% and 13.19% during the same holding period.

2. First Interstate Bancsystem Inc. (FIBK): Operates as the bank holding company for First Interstate Bank that provides commercial and consumer banking services.

  • Market cap at $803M, most recent closing price at $18.43.
  • The company is expected to report earnings on April 22nd, 2013.
  • Dividend yield at 2.8%, payout ratio at 48%
  • Diluted TTM earnings per share at 1.27, and a MRQ book value per share value at 17.35, implies a Graham Number fair value = sqrt(22.5*1.27*17.35) = $22.27. Based on the stock's price at $18.34, this implies a potential upside of 21.41% from current levels.
  • FIBK has recorded great gains over the last quarter, when compared to its closest competitors. The stock returned 17.46% since 1/8/13, better than SVB Financial Group (SIVB) and East West Bancorp, Inc. (EWBC), which returned 12.77% and 12.33% during the same holding period.
  • Another sign of optimism: The company's short float stands at 1.31%, much lower than City National Corp. (short float at 10.32%, representing 12.88 days of trading volume) and Zions Bancorp. (short float at 9.15%, representing 7.57 days of trading volume).

3. Fulton Financial Corporation (FULT): Operates as a multi-bank holding company that offers retail and commercial banking products and services in Pennsylvania, Delaware, Maryland, New Jersey, and Virginia.

  • Market cap at $2.24B, most recent closing price at $11.51.
  • The company is expected to report earnings on April 16th, 2013.
  • Dividend yield at 2.8%, payout ratio at 38%.
  • Diluted TTM earnings per share at 0.8, and a MRQ book value per share value at 10.45, implies a Graham Number fair value = sqrt(22.5*0.8*10.45) = $13.71. Based on the stock's price at $11.39, this implies a potential upside of 20.41% from current levels.
  • The stock returned 11.53% since 1/8/13, just better than Webster Financial Corp. (WBS) and Susquehanna Bancshares, Inc. (SUSQ), which returned 11.46% and 10.28% during the same holding period.

4. Principal Financial Group Inc. (PFG): Provides retirement savings, investment, and insurance products and services worldwide.

  • Market cap at $9.87B, most recent closing price at $33.65.
  • The company is expected to report earnings on April 25th, 2013.
  • Dividend yield at 2.7%, payout ratio at 22%.
  • Diluted TTM earnings per share at 2.57, and a MRQ book value per share value at 33.2, implies a Graham Number fair value = sqrt(22.5*2.57*33.2) = $43.82. Based on the stock's price at $33.47, this implies a potential upside of 30.91% from current levels.
  • Labeling this stock an outperformer is more questionable: PFG has performed in line with the rest of its industry since 1/8/13, returning 16.07% over the last quarter. This performance has been better than Franklin Resources Inc. (BEN) and The Bank of New York Mellon Corporation (BK), but worse than industry leaders like State Street Corp. (STT) and BlackRock, Inc. (BLK), which returned 18.53% and 17.21% respectively.
  • In addition to the Graham Number, Principal Financial looks cheap relative to competitors based on more conventional valuation ratios: The stock's PEG ratio stands at 1.19, while its Price/Cash ratio stands at 2.39. Even on a Price to Free Cash Flow basis the stock looks cheap, with a ratio of 3.6, compared to The Bank of New York Mellon Corporation (P/FCF ratio at 95.79) and Franklin Resources Inc. (P/FCF ratio at 130.6).

*EPS and BVPS data sourced from Yahoo Finance, all other data sourced from Finviz.

Source: 4 Outperforming Dividend Stocks Undervalued By The Graham Number