A rising dividend is usually considered a good sign for a company’s stock – it indicates increased confidence from management that they will be able to continue paying a higher dividend, and a higher dividend means more value for shareholders.
We ran a screen on large-cap stocks that appear undervalued relative to the Graham number for those with rapid dividend growth.
The Graham Number, which reflects the maximum fair value for a stock, only requires two data points: current earnings per share and current book value per share. The Graham Number = Square Root of (22.5) x (TTM Earnings per Share) x (MRQ Book Value per Share). Any stock trading at a significant discount to this number would appear undervalued.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.
Do you think these stocks pay reliable dividends? Use this list as a starting-off point for your own analysis.
List sorted by potential upside implied by the Graham number.
1. International Paper Co. (IP): Operates as a paper and packaging company with operations in North America, Europe, Latin America, Russia, Asia, and north Africa. Market cap of $11.69B. Dividend yield at 3.94%, payout ratio at 24.88%. Current year dividend per share estimate at $0.97 vs. TTM dividend per share at $0.70. TTM Diluted EPS at $2.93, MRQ Book Value Per Share at $17.63, Graham number at $34.09 (vs. current price at $26.96, implies a potential upside of 26.45%). This is a risky stock that is significantly more volatile than the overall market (beta = 2.18). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 3.93%, current ratio at 1.95, and quick ratio at 1.45. The stock has gained 21.55% over the last year.
2. Carnival Corporation (CCL): Operates as a cruise and vacation company. Market cap of $25.53B. Dividend yield at 3.11%, payout ratio at 29.02%. Current year dividend per share estimate at $0.86 vs. TTM dividend per share at $0.70. TTM Diluted EPS at $2.40, MRQ Book Value Per Share at $30.12, Graham number at $40.33 (vs. current price at $32.29, implies a potential upside of 24.90%). The stock has had a couple of great days, gaining 5.84% over the last week.
3. U.S. Bancorp (USB): Provides various banking and financial services in the United States. Market cap of $44.10B. Dividend yield at 2.18%, payout ratio at 16.75%. Current year dividend per share estimate at $0.48 vs. TTM dividend per share at $0.35. TTM Diluted EPS at $2.06, MRQ Book Value Per Share at $15.50, Graham number at $26.80 (vs. current price at $22.90, implies a potential upside of 17.05%). The stock has had a couple of great days, gaining 7.95% over the last week.
*Dividend per share data sourced from Screeener.co, 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.