Interested in stocks that may provide both income and price appreciation? For ideas, you may be interested in this list.
We ran a screen on the S&P 500 for stocks paying dividend yields above 1% and sustainable payout ratios below 50%. We screened these stocks for those that also appear undervalued relative to their Graham number.
The Graham number was developed by the “godfather of value investing” Benjamin Graham as a measure of the maximum fair value of a stock. Stocks trading well below their Graham number may be 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.
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.
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Do you think these stocks will rise higher? Use this list as a starting-off point for your own analysis.
List sorted by potential upside implied by Graham number.
1. Molson Coors Brewing Company (TAP): Distributes beer brands. Market cap of $7.37B. Dividend yield at 3.14%, payout ratio at 31.45%. TTM Diluted EPS at $3.26, MRQ Book Value Per Share at $43.61, Graham number at $56.56 (vs. current price at $40.04, implies a potential upside of 41.26%). The stock has lost 14.8% over the last year.
2. Entergy Corporation (ETR): Operates as an integrated energy company in the United States. Market cap of $12.15B. Dividend yield at 4.81%, payout ratio at 41.72%. TTM Diluted EPS at $7.92, MRQ Book Value Per Share at $50.91, Graham number at $95.25 (vs. current price at $69.02, implies a potential upside of 38.0%). The stock has lost 0.07% over the last year.
3. Aetna Inc. (AET): Operates as a diversified health care benefits company in the United States. Market cap of $15.10B. Dividend yield at 1.44%, payout ratio at 9.19%. TTM Diluted EPS at $4.70, MRQ Book Value Per Share at $29.06, Graham number at $55.44 (vs. current price at $40.23, implies a potential upside of 37.80%). Might be undervalued at current levels, with a PEG ratio at 0.8, and P/FCF ratio at 6.84. The stock has had a good month, gaining 10.09%.
4. Sempra Energy (SRE): Engages in the development of energy infrastructure, operation of utilities, and provision of energy-related products and services worldwide. Market cap of $12.78B. Dividend yield at 3.60%, payout ratio at 32.71%. TTM Diluted EPS at $5.55, MRQ Book Value Per Share at $40.20, Graham number at $70.85 (vs. current price at $53.05, implies a potential upside of 33.56%). The stock has gained 8.83% over the last year.
5. Chesapeake Energy Corporation (CHK): Engages in the acquisition, development, exploration, and production of natural gas and oil properties in the United States. Market cap of $16.92B. Dividend yield at 1.36%, payout ratio at 16.17%. TTM Diluted EPS at $1.99, MRQ Book Value Per Share at $25.55, Graham number at $33.82 (vs. current price at $25.54, implies a potential upside of 32.43%). The stock has gained 16.36% over the last year.
6. State Street Corp. (STT): Provides various financial services and products to the institutional investors worldwide. Market cap of $20.12B. Dividend yield at 1.76%, payout ratio at 17.34%. TTM Diluted EPS at $3.19, MRQ Book Value Per Share at $38.84, Graham number at $52.80 (vs. current price at $40.11, implies a potential upside of 31.64%). The stock has had a good month, gaining 20.65%.
7. The Chubb Corporation (CB): Provides property and casualty insurance to businesses and individuals. Market cap of $18.58B. Dividend yield at 2.34%, payout ratio at 24.05%. TTM Diluted EPS at $6.20, MRQ Book Value Per Share at $55.23, Graham number at $87.78 (vs. current price at $67.07, implies a potential upside of 30.87%). The stock has gained 17.5% over the last year.
8. ConocoPhillips (COP): Operates as an integrated energy company worldwide. Market cap of $95.20B. Dividend yield at 3.68%, payout ratio at 32.21%. TTM Diluted EPS at $7.80, MRQ Book Value Per Share at $49.56, Graham number at $93.26 (vs. current price at $71.44, implies a potential upside of 30.55%). The stock has gained 19.82% over the last year.
9. BB&T Corporation (BBT): Operates as the financial holding company for Branch Banking and Trust Company that provides banking and trust services to small and mid-size businesses, public agencies, local governments, and individuals in the United States. Market cap of $16.12B. Dividend yield at 2.77%, payout ratio at 39.66%. TTM Diluted EPS at $1.56, MRQ Book Value Per Share at $25.07, Graham number at $29.66 (vs. current price at $23.06, implies a potential upside of 28.64%). The stock has lost 5.32% over the last year.
10. The Travelers Companies, Inc. (TRV): Provides various commercial and personal property and casualty insurance products and services to businesses, government units, associations, and individuals primarily in the United States. Market cap of $23.75B. Dividend yield at 2.85%, payout ratio at 39.36%. TTM Diluted EPS at $3.91, MRQ Book Value Per Share at $60.98, Graham number at $73.24 (vs. current price at $57.40, implies a potential upside of 27.60%). The stock has had a good month, gaining 12.21%.
11. Sealed Air Corporation (SEE): Manufactures and sells packaging and performance-based materials and equipment systems worldwide. Market cap of $2.84B. Dividend yield at 2.93%, payout ratio at 33.84%. TTM Diluted EPS at $1.40, MRQ Book Value Per Share at $15.93, Graham number at $22.40 (vs. current price at $17.61, implies a potential upside of 27.20%). The stock has lost 19.24% over the last year.
12. Carnival Corporation (CCL): Operates as a cruise and vacation company. Market cap of $25.75B. Dividend yield at 3.01%, payout ratio at 34.51%. TTM Diluted EPS at $2.45, MRQ Book Value Per Share at $31.65, Graham number at $41.77 (vs. current price at $32.94, implies a potential upside of 26.81%). The stock has lost 19.47% over the last year.
13. Time Warner Inc. (TWX): Operates as a media and entertainment company in the United States and internationally. Market cap of $34.65B. Dividend yield at 2.72%, payout ratio at 32.41%. TTM Diluted EPS at $2.63, MRQ Book Value Per Share at $30.67, Graham number at $42.60 (vs. current price at $34.18, implies a potential upside of 24.64%). The stock has gained 16.68% over the last year.
14. Invesco Ltd. (IVZ): Provides its services to individuals, typically high net worth individuals. Market cap of $9.06B. Dividend yield at 2.44%, payout ratio at 30.83%. TTM Diluted EPS at $1.51, MRQ Book Value Per Share at $17.63, Graham number at $24.47 (vs. current price at $19.74, implies a potential upside of 23.98%). The stock has had a good month, gaining 10.74%.
15. Staples, Inc. (SPLS): Operates as an office products company. Market cap of $10.90B. Dividend yield at 2.73%, payout ratio at 36.27%. TTM Diluted EPS at $1.30, MRQ Book Value Per Share at $10.02, Graham number at $17.12 (vs. current price at $14.54, implies a potential upside of 17.74%). Might be undervalued at current levels, with a PEG ratio at 0.87, and P/FCF ratio at 13.43. The stock has lost 22.06% over the last year.
16. Edison International (EIX): Engages in the supply of electric energy in central, coastal, and southern California. Market cap of $13.20B. Dividend yield at 3.16%, payout ratio at 43.05%. TTM Diluted EPS at $2.95, MRQ Book Value Per Share at $33.81, Graham number at $47.37 (vs. current price at $40.47, implies a potential upside of 17.06%). The stock has gained 10.93% over the last year.
17. General Electric Co. (GE): Operates as a technology, service, and finance company worldwide. Market cap of $169.97B. Dividend yield at 3.73%, payout ratio at 47.38%. TTM Diluted EPS at $1.31, MRQ Book Value Per Share at $11.77, Graham number at $18.63 (vs. current price at $16.06, implies a potential upside of 15.98%). The stock has gained 2.68% over the last year.
*Author owns shares of EIX and has no plans to change his position in the next 72 hours. 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.
