4 Stocks With Rapid Dividend Growth Undervalued By Graham

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 |  Includes: CCL, IP, MKSI, WOR
by: Kapitall

One helpful way to find potentially undervalued opportunities is from the “godfather of value investing” himself, Benjamin Graham.

Graham created an equation to calculate the maximum fair value for a stock, referred to as the Graham Number. Any stock trading at a significant discount to this number would appear undervalued.

The Graham Number 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). 

This equation assumes that a stock is overvalued if P/E is over 15 or P/BV is over 1.5.

We used the Graham Number to screen for potentially undervalued stocks among the universe of stocks seeing rapid dividend growth, comparing the current year dividend per share estimate to the trailing-twelve-month dividend.

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.


(Click to enlarge)

Do you think these stocks are undervalued? Use this list as a starting-off point for your own analysis.

List sorted by dividend yield.

1. International Paper Co. (NYSE:IP): Operates as a paper and packaging company with operations in North America, Europe, Latin America, Russia, Asia, and north Africa. Market cap of $12.07B. Dividend yield at 3.76%, 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 $27.88, implies a potential upside of 22.28%). This is a risky stock that is significantly more volatile than the overall market (beta = 2.21). The stock has had a couple of great days, gaining 6.64% over the last week.

2. Carnival Corporation (NYSE:CCL): Operates as a cruise and vacation company. Market cap of $25.51B. Dividend yield at 2.99%, payout ratio at 29.02%. Current year dividend per share estimate at $0.90 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 $33.31, implies a potential upside of 21.07%). The stock has lost 11.03% over the last year.

3. Worthington Industries, Inc. (NYSE:WOR): Operates as a diversified metal processing company focusing on steel processing and manufactured metal products in the United States, Canada, and Europe. Market cap of $1.07B. Dividend yield at 2.67%, payout ratio at 25.56%. Current year dividend per share estimate at $0.48 vs. TTM dividend per share at $0.40. TTM Diluted EPS at $1.53, MRQ Book Value Per Share at $9.62, Graham number at $18.20 (vs. current price at $14.93, implies a potential upside of 21.89%). The stock is a short squeeze candidate, with a short float at 10.85% (equivalent to 5.74 days of average volume). The stock has lost 2.46% over the last year.

4. MKS Instruments Inc. (NASDAQ:MKSI): Provides instruments, subsystems, and process control solutions that measure, control, power, monitor, and analyze parameters of manufacturing processes worldwide. Market cap of $1.24B. Dividend yield at 2.44%, payout ratio at 10.65%. Current year dividend per share estimate at $0.60 vs. TTM dividend per share at $0.30. TTM Diluted EPS at $2.92, MRQ Book Value Per Share at $18.10, Graham number at $34.48 (vs. current price at $24.67, implies a potential upside of 39.78%). The stock has gained 24.49% over the last year.

*Dividend per share data sourced from Screener.co, 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.