Below is a list of 11 financial stocks that are paying attractive dividends (between 4-7%). These stocks are also attractively priced, according to the Graham Number.

Benjamin Graham, the man who developed this equation, was a former mentor of Warren Buffett and is the so-called “Godfather” of value investing.

The Graham Number, or the maximum price an investor should pay for a stock, is derived using only two data points: current earnings per share and current book value per share. *Click for expanded images:*

The Graham Number = Fair Value of a Stock = Square Root of (22.5) x (TTM Earnings per Share) x (MRQ Book Value per Share).

The math of the Graham number is relatively straightforward. It is predicated on the belief that the price-to-earnings (P/EPS) ratio should be no more than 15, and the price-to-book value (P/BVPS) ratio should be no more than 1.5. Therefore we only include companies that meet both of these criteria.

From these criteria, the product of the two should not be more than 22.5. In other words, (P/EPS of 15) x (P/BVPS of 1.5) = 22.5, from which the equation was created.

Because financial institutions primarily carry liquid assets on their balance sheet (which are held at market value, as opposed to fixed assets which are held at historical cost), price-to-book-value is considered a more reliable way to compare their valuation with others.

Do you think these names are undervalued? Read below, using this list as a starting point for your own analysis into potentially undervalued opportunities.

List sorted by implied upside potential derived from the Graham equation.* 1. Sun Life Financial Inc. (NYSE:SLF):* Life Insurance Industry. Market cap of $18.06B. Dividend yield at 4.7%. BVPS at $29.18, diluted EPS at $2.83. Graham number = sqrt(22.5 x $29.18 x $2.83) = $43.10. Current price at $31.55 (implies a potential upside of 36.62%). The stock has gained 1.06% over the last year.

*Credit Services Industry. Market cap of $330.14M. Dividend yield at 4.7%. BVPS at $3.78, diluted EPS at $0.58. Graham number = sqrt(22.5 x $3.78 x $0.58) = $7.02. Current price at $5.23 (implies a potential upside of 34.29%). This is a risky stock that is significantly more volatile than the overall market (beta = 3.01). PEG ratio at 0.61, and P/FCF ratio at 2.98. The stock has lost 8.78% over the last year.*

**2. Advance America, Cash Advance Centers Inc. (NYSE:AEA):***: REIT. Market cap of $1.21B. Dividend yield at 6.4%. BVPS at $13.63, diluted EPS at $1.36. Graham number = sqrt(22.5 x $13.63 x $1.36) = $20.42. Current price at $15.56 (implies a potential upside of 31.25%). The stock is a short squeeze candidate, with a short float at 6.53% (equivalent to 9.56 days of average volume). The stock has gained 8.14% over the last year.*

**3. Redwood Trust Inc. (NYSE:RWT)***Property & Casualty Insurance Industry. Market cap of $347.08M. Dividend yield at 4.3%. BVPS at $24.90, diluted EPS at $1.69. Graham number = sqrt(22.5 x $24.90 x $1.69) = $30.77. Current price at $23.56 (implies a potential upside of 30.60%). BWINB has a relatively low correlation to the market (beta = 0.74), which may be appealing to risk-averse investors. The stock has gained 1.3% over the last year.*

**4. Baldwin & Lyons Inc. (NASDAQ:BWINB):***: Property & Casualty Insurance Industry. Market cap of $699.03M. Dividend yield at 4.3%. BVPS at $43.88, diluted EPS at $3.55. Graham number = sqrt(22.5 x $43.88 x $3.55) = $59.20. Current price at $46.70 (implies a potential upside of 26.77%). Risk-averse investors may appreciate that SAFT has a relatively low correlation to the market (beta = 0.5). The stock has gained 27.94% over the last year.*

5. Safety Insurance Group Inc. (NASDAQ:SAFT)5. Safety Insurance Group Inc. (NASDAQ:SAFT)

*Property & Casualty Insurance Industry. Market cap of $5.34B. Dividend yield at 4.9%. BVPS at $30.87, diluted EPS at $2.31. Graham number = sqrt(22.5 x $30.87 x $2.31) = $40.06. Current price at $32.99 (implies a potential upside of 21.42%). CINF has a relatively low correlation to the market (beta = 0.74), which may be appealing to risk-averse investors. The stock is also a short squeeze candidate, with a short float at 7.01% (equivalent to 10.6 days of average volume). The stock has gained 18.89% over the last year.*

**6. Cincinnati Financial Corp. (NASDAQ:CINF):***Regional Bank. Market cap of $423.35M. Dividend yield at 4.4%. BVPS at $22.16, diluted EPS at $2.16. Graham number = sqrt(22.5 x $22.16 x $2.16) = $32.82. Current price at $27.60 (implies a potential upside of 18.90%). The stock has gained 6.79% over the last year.*

**7. Community Trust Bancorp Inc. (NASDAQ:CTBI):***Property & Casualty Insurance Industry. Market cap of $897.16M. Dividend yield at 4.4%. BVPS at $28.42, diluted EPS at $2.42. Graham number = sqrt(22.5 x $28.42 x $2.42) = $39.34. Current price at $33.24 (implies a potential upside of 18.35%). HGIC has a relatively low correlation to the market (beta = 0.32), which may be appealing to risk averse investors. The stock has gained 7.85% over the last year.*

**8. Harleysville Group Inc. (NASDAQ:HGIC):***: Property & Casualty Insurance Industry. Market cap of $2.14B. Dividend yield at 6.1%. BVPS at $32.75, diluted EPS at $2.78. Graham number = sqrt(22.5 x $32.75 x $2.78) = $45.26. Current price at $39.57 (implies a potential upside of 14.38%). The stock has lost 6.05% over the last year.*

**9. Mercury General Corporation (NYSE:MCY)***Foreign Money Center Banks Industry. Market cap of $183.23B. Dividend yield at 4.6%. BVPS at $42.13, diluted EPS at $3.60. Graham number = sqrt(22.5 x $42.13 x $3.60) = $58.42. Current price at $52.53 (implies a potential upside of 11.21%). The stock has gained 3.08% over the last year.*

10. HSBC Holdings plc (HBC):10. HSBC Holdings plc (HBC):

*Savings & Loans Industry. Market cap of $7.54B. Dividend yield at 5.8%. BVPS at $12.69, diluted EPS at $1.24. Graham number = sqrt(22.5 x $12.69 x $1.24) = $18.82. Current price at $17.44 (implies a potential upside of 7.89%). The stock is a short squeeze candidate, with a short float at 5.77% (equivalent to 7.58 days of average volume). The stock has gained 9.87% over the last year.*

**11. New York Community Bancorp Inc. (NYB):***Graham data sourced from Yahoo! Finance, dividend yield and 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.