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If you’re looking for stocks paying dividend income that also have the potential for capital gains, you may find this article very interesting.

Using the Graham equation, a formula that calculates the maximum fair value for a stock based on two fundamental data points, we ran a screen on dividend stocks for those that 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 this equation to screen for potentially undervalued stocks among the universe of dividend stocks with strong operating cash flow coverage of the company’s dividend.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six 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 likely to move higher? Use this list as a starting point for your own analysis.

List sorted by potential upside implied by Graham number.

1. ConocoPhillips (NYSE:COP): Operates as an integrated energy company worldwide. Market cap of $95.03B. Dividend yield at 3.87%, payout ratio at 30.57%. TTM dividend per share at $2.42 vs. TTM operating cash flow per share at $12.90. TTM Diluted EPS at $7.93, MRQ Book Value Per Share at $51.03, Graham number at $95.42 (vs. current price at $68.65, implies a potential upside of 39.0%). The stock has gained 20.72% over the last year.

2. ManTech International Corporation (NASDAQ:MANT): Provides technologies and solutions for national security programs in the United States and internationally. Market cap of $1.27B. Dividend yield at 4.90%, payout ratio at 11.52%. TTM dividend per share at $0.42 vs. TTM operating cash flow per share at $6.71. TTM Diluted EPS at $3.65, MRQ Book Value Per Share at $28.09, Graham number at $48.03 (vs. current price at $34.67, implies a potential upside of 38.54%). The stock is a short squeeze candidate, with a short float at 12.45% (equivalent to 10.13 days of average volume). The stock has lost 16.05% over the last year.

3. CME Group Inc. (NASDAQ:CME): Operates the CME, CBOT, NYMEX and COMEX regulatory exchanges worldwide. Market cap of $17.39B. Dividend yield at 2.22%, payout ratio at 28.60%. TTM dividend per share at $5.10 vs. TTM operating cash flow per share at $19.17. TTM Diluted EPS at $17.79, MRQ Book Value Per Share at $313.52, Graham number at $354.25 (vs. current price at $256.61, implies a potential upside of 38.05%). The stock has lost 5.6% over the last year.

4. Murphy Oil Corporation (NYSE:MUR): Engages in the exploration and production of oil and gas properties worldwide. Market cap of $10.26B. Dividend yield at 2.14%, payout ratio at 22.14%. TTM dividend per share at $1.10 vs. TTM operating cash flow per share at $13.38. TTM Diluted EPS at $4.93, MRQ Book Value Per Share at $45.63, Graham number at $71.14 (vs. current price at $52.23, implies a potential upside of 36.21%). The stock has recently rebounded, and is currently trading 11.65% above its SMA20 and 6.84% above its SMA50. However, the stock still trades -17.17% below its SMA200. The stock has had a couple of great days, gaining 5.51% over the last week.

5. 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 $11.33B. Dividend yield at 4.20%, payout ratio at 24.88%. TTM dividend per share at $0.70 vs. TTM operating cash flow per share at $4.60. TTM Diluted EPS at $2.93, MRQ Book Value Per Share at $17.63, Graham number at $34.09 (vs. current price at $25.17, implies a potential upside of 35.45%). This is a risky stock that is significantly more volatile than the overall market (beta = 2.21). The stock has gained 15.66% over the last year.

6. Sealed Air Corporation (NYSE:SEE): Manufactures and sells packaging and performance-based materials and equipment systems worldwide. Market cap of $2.75B. Dividend yield at 3.09%, payout ratio at 33.59%. TTM dividend per share at $0.52 vs. TTM operating cash flow per share at $2.55. TTM Diluted EPS at $1.42, MRQ Book Value Per Share at $16.08, Graham number at $22.67 (vs. current price at $17.03, implies a potential upside of 33.10%). The stock has lost 24.89% over the last year.

7. City National Corp. (NYSE:CYN): Operates as the bank holding company for City National Bank that provides a range of banking, investing and trust services to small to mid-sized businesses, entrepreneurs, professionals and affluent individuals. Market cap of $2.15B. Dividend yield at 2.07%, payout ratio at 20.01%. TTM dividend per share at $0.60 vs. TTM operating cash flow per share at $9.41. TTM Diluted EPS at $3.02, MRQ Book Value Per Share at $39.24, Graham number at $51.64 (vs. current price at $39.16, implies a potential upside of 31.86%). The stock has lost 22.43% over the last year.

8. Independent Bank Corp. (NASDAQ:INDB): Operates as the bank holding company for Rockland Trust Company that provides commercial and retail banking and wealth management services in Massachusetts. Market cap of $528.99M. Dividend yield at 3.15%, payout ratio at 34.83%. TTM dividend per share at $0.74 vs. TTM operating cash flow per share at $3.28. TTM Diluted EPS at $2.12, MRQ Book Value Per Share at $21.24, Graham number at $31.83 (vs. current price at $24.26, implies a potential upside of 31.20%). The stock is a short squeeze candidate, with a short float at 14.06% (equivalent to 30.99 days of average volume). The stock has gained 8.54% over the last year.

9. Prosperity Bancshares Inc. (PRSP): Operates as the holding company for Prosperity Bank that provides retail and commercial banking services to small and medium-sized businesses and consumers. Market cap of $1.70B. Dividend yield at 2.03%, payout ratio at 23.74%. TTM dividend per share at $0.68 vs. TTM operating cash flow per share at $4.21. TTM Diluted EPS at $2.86, MRQ Book Value Per Share at $32.24, Graham number at $45.55 (vs. current price at $34.85, implies a potential upside of 30.70%). The stock is a short squeeze candidate, with a short float at 14.61% (equivalent to 17.86 days of average volume). The stock has gained 13.82% over the last year.

10. The Washington Post Company (WPO): Operates as a diversified education and media company in the United States and internationally. Market cap of $2.75B. Dividend yield at 2.77%, payout ratio at 33.94%. TTM dividend per share at $9.30 vs. TTM operating cash flow per share at $66.75. TTM Diluted EPS at $24.07, MRQ Book Value Per Share at $341.53, Graham number at $430.07 (vs. current price at $338.50, implies a potential upside of 27.05%). The stock is a short squeeze candidate, with a short float at 9.61% (equivalent to 12.9 days of average volume). The stock has lost 6.5% over the last year.

11. Carnival Corporation (NYSE:CCL): Operates as a cruise and vacation company. Market cap of $26.63B. Dividend yield at 3.02%, payout ratio at 34.51%. TTM dividend per share at $0.85 vs. TTM operating cash flow per share at $4.72. TTM Diluted EPS at $2.45, MRQ Book Value Per Share at $31.65, Graham number at $41.77 (vs. current price at $33.38, implies a potential upside of 25.13%). The stock has lost 10.71% over the last year.

12. BOK Financial Corp. (NASDAQ:BOKF): A financial holding company, offers a range of financial products and services to commercial and industrial customers and other financial institutions and consumers. Market cap of $3.39B. Dividend yield at 2.35%, payout ratio at 27.26%. TTM dividend per share at $1.03 vs. TTM operating cash flow per share at $6.88. TTM Diluted EPS at $3.75, MRQ Book Value Per Share at $38.97, Graham number at $57.34 (vs. current price at $47.31, implies a potential upside of 21.20%). The stock has gained 11.69% over the last year.

13. Albany International Corp. (NYSE:AIN): Manufactures and sells paper machine clothing and industrial doors worldwide. Market cap of $648.96M. Dividend yield at 2.62%, payout ratio at 30.80%. TTM dividend per share at $0.49 vs. TTM operating cash flow per share at $2.89. TTM Diluted EPS at $1.59, MRQ Book Value Per Share at $15.56, Graham number at $23.59 (vs. current price at $19.98, implies a potential upside of 18.09%). The stock is a short squeeze candidate, with a short float at 6.87% (equivalent to 8.09 days of average volume). The stock has recently rebounded, and is currently trading 9.07% above its SMA20 and 6.08% above its SMA50. However, the stock still trades 10.82% below its SMA200. The stock has gained 8.05% over the last year.

14. UMB Financial Corporation (NASDAQ:UMBF): Provides banking and other financial services in the United States. Market cap of $1.44B. Dividend yield at 2.34%, payout ratio at 31.48%. TTM dividend per share at $0.77 vs. TTM operating cash flow per share at $5.13. TTM Diluted EPS at $2.46, MRQ Book Value Per Share at $27.98, Graham number at $39.35 (vs. current price at $33.83, implies a potential upside of 16.33%). The stock is a short squeeze candidate, with a short float at 6.92% (equivalent to 12.23 days of average volume). The stock has gained 0.54% over the last year.

*Dividend per share and operating cash flow per share data sourced from Screener.co, BVPS and EPS data sourced from Yahoo! Finance, all other data sourced from Finviz. Data sourced October 20.

Source: 14 Dividend Stocks With Strong Cash Coverage Undervalued By Graham