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If you consider yourself a value investor, you may be interested in this list. Value investors look for stocks that they believe are trading below their fair value, with the assumption that they’ll rise to their fair value in the near future.

One interesting proxy for fair value was developed by the “godfather of value investing” Benjamin Graham, called the Graham Number.

The Graham Number is a measure of a stock’s maximum fair value, and it 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. Stocks trading at a significant discount to their Graham number may be undervalued.

We ran a screen on dividend stocks paying dividend yields above 1% and sustainable payout ratios below 50% for those trading at the most significant discounts to their Graham number.

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.

(Click chart for more detail)

Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.

List sorted by potential upside implied by Graham.

1. SeaCube Container Leasing Ltd. (BOX-OLD): Operates as a container leasing company worldwide. Market cap of $308.45M. Dividend yield at 6.27%, payout ratio at 47.60%. TTM Diluted EPS at $1.88, MRQ Book Value Per Share at $10.29, Graham number at $20.86 (vs. current price at $14.93, implies a potential upside of 39.74%). The stock has had a good month, gaining 13.59%.

2. NYSE Euronext, Inc. (NYX): Operates securities exchanges. Market cap of $7.44B. Dividend yield at 4.4%, payout ratio at 48.77%. TTM Diluted EPS at $2.44, MRQ Book Value Per Share at $26.43, Graham number at $38.09 (vs. current price at $27.30, implies a potential upside of 39.53%). The stock has gained 1.47% over the last year.

3. Southside Bancshares Inc. (SBSI): Operates as the holding company for Southside Bank that provides financial products and services to individuals, businesses, municipal entities, and non-profit organizations. Market cap of $366.95M. Dividend yield at 3.23%, payout ratio at 36.67%. TTM Diluted EPS at $2.28, MRQ Book Value Per Share at $15.68, Graham number at $28.36 (vs. current price at $20.37, implies a potential upside of 39.23%). The stock is a short squeeze candidate, with a short float at 6.47% (equivalent to 16.91 days of average volume). The stock has had a couple of great days, gaining 9.38% over the last week.

4. Independent Bank Corp. (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 $578.89M. Dividend yield at 2.82%, payout ratio at 34.71%. TTM Diluted EPS at $2.15, MRQ Book Value Per Share at $21.48, Graham number at $32.23 (vs. current price at $23.16, implies a potential upside of 39.18%). The stock is a short squeeze candidate, with a short float at 14.41% (equivalent to 34. days of average volume). The stock has had a couple of great days, gaining 16.36% over the last week.

5. National Healthcare Corp. (NHC): Operates and manages long-term healthcare centers, and associated assisted living and independent living centers in the United States. Market cap of $611.29M. Dividend yield at 2.71%, payout ratio at 28.41%. TTM Diluted EPS at $4.00, MRQ Book Value Per Share at $31.03, Graham number at $52.85 (vs. current price at $38.12, implies a potential upside of 38.63%). The stock has had a couple of great days, gaining 15.95% over the last week.

6. 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 $12.85B. Dividend yield at 3.58%, 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 $51.66, implies a potential upside of 37.15%). The stock has gained 8.97% over the last year.

7. 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 $16.41B. Dividend yield at 2.72%, payout ratio at 40.24%. TTM Diluted EPS at $1.56, MRQ Book Value Per Share at $25.07, Graham number at $29.66 (vs. current price at $21.67, implies a potential upside of 36.89%). The stock has had a couple of great days, gaining 8.63% over the last week.

8. ConocoPhillips (COP): Operates as an integrated energy company worldwide. Market cap of $96.31B. Dividend yield at 3.64%, 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 $68.14, implies a potential upside of 36.87%). The stock has had a couple of great days, gaining 6.46% over the last week.

9. The Chubb Corporation (CB): Provides property and casualty insurance to businesses and individuals. Market cap of $18.93B. Dividend yield at 2.29%, payout ratio at 24.05%. TTM Diluted EPS at $6.20, MRQ Book Value Per Share at $56.24, Graham number at $88.57 (vs. current price at $64.91, implies a potential upside of 36.46%). The stock has gained 18.71% over the last year.

10. MKS Instruments Inc. (MKSI): Provides instruments, subsystems, and process control solutions that measure, control, power, monitor, and analyze parameters of manufacturing processes worldwide. Market cap of $1.45B. Dividend yield at 2.17%, payout ratio at 16.69%. TTM Diluted EPS at $2.73, MRQ Book Value Per Share at $18.55, Graham number at $33.76 (vs. current price at $24.78, implies a potential upside of 36.22%). The stock has had a couple of great days, gaining 11.78% over the last week.

11. 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 $22.85B. Dividend yield at 2.96%, 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 $54.07, implies a potential upside of 35.46%). The stock has gained 3.79% over the last year.

12. Sims Metal Management Limited (SMS): Operates in the metal recycling industry. Market cap of $2.78B. Dividend yield at 3.62%, payout ratio at 37.43%. TTM Diluted EPS at $0.91, MRQ Book Value Per Share at $13.81, Graham number at $16.82 (vs. current price at $12.43, implies a potential upside of 35.28%). The stock has had a couple of great days, gaining 7.8% over the last week.

13. Steel Dynamics Inc. (STLD): Engages in the manufacture and sale of steel products in the United States. Market cap of $2.95B. Dividend yield at 2.96%, payout ratio at 32.02%. TTM Diluted EPS at $1.12, MRQ Book Value Per Share at $10.52, Graham number at $16.28 (vs. current price at $12.07, implies a potential upside of 34.90%). The stock has had a couple of great days, gaining 11.93% over the last week.

14. Community Trust Bancorp Inc. (CTBI): Operates as the holding company for Community Trust Bank, Inc. Market cap of $446.39M. Dividend yield at 4.29%, payout ratio at 49.37%. TTM Diluted EPS at $2.49, MRQ Book Value Per Share at $23.58, Graham number at $36.35 (vs. current price at $26.97, implies a potential upside of 34.77%). The stock has had a couple of great days, gaining 7.27% over the last week.

15. Simmons First National Corporation (SFNC): Provides a range of banking products and services to individual and corporate customers in Arkansas, Missouri, and Kansas. Market cap of $468.36M. Dividend yield at 2.80%, payout ratio at 36.95%. TTM Diluted EPS at $2.06, MRQ Book Value Per Share at $23.52, Graham number at $33.02 (vs. current price at $24.58, implies a potential upside of 34.33%). The stock has had a couple of great days, gaining 10.33% over the last week.

16. Sealed Air Corporation (SEE): Manufactures and sells packaging and performance-based materials and equipment systems worldwide. Market cap of $3.51B. Dividend yield at 2.78%, payout ratio at 33.84%. TTM Diluted EPS at $1.40, MRQ Book Value Per Share at $15.83, Graham number at $22.33 (vs. current price at $16.72, implies a potential upside of 33.55%). The stock has had a couple of great days, gaining 10.25% over the last week.

17. First Financial Corp. (THFF): Provides various financial services. Market cap of $445.39M. Dividend yield at 2.78%, payout ratio at 34.56%. TTM Diluted EPS at $2.69, MRQ Book Value Per Share at $27.11, Graham number at $40.51 (vs. current price at $30.43, implies a potential upside of 33.12%). The stock has had a couple of great days, gaining 11.27% over the last week.

18. Commercial National Financial Corp. (OTCQB:CNAF): Operates as a holding company for the Commercial Bank & Trust of PA that provides various commercial banking and trust services primarily in Pennsylvania. Market cap of $62.52M. Dividend yield at 4.76%, payout ratio at 43.12%. TTM Diluted EPS at $2.13, MRQ Book Value Per Share at $17.98, Graham number at $29.35 (vs. current price at $22.16, implies a potential upside of 32.47%). The stock has gained 27.61% over the last year.

19. Bryn Mawr Bank Corp. (BMTC): Operates as the holding company for The Bryn Mawr Trust Company, which provides various commercial and retail banking services. Market cap of $247.14M. Dividend yield at 3.18%, payout ratio at 36.91%. TTM Diluted EPS at $1.60, MRQ Book Value Per Share at $14.30, Graham number at $22.69 (vs. current price at $17.14, implies a potential upside of 32.38%). The stock has had a couple of great days, gaining 10.15% over the last week.

20. IdaCorp, Inc. (IDA): Engages in the generation, transmission, distribution, sale, and purchase of electric energy in the United States. Market cap of $2.04B. Dividend yield at 2.92%, payout ratio at 33.42%. TTM Diluted EPS at $3.60, MRQ Book Value Per Share at $33.29, Graham number at $51.93 (vs. current price at $39.35, implies a potential upside of 31.96%). The stock has gained 13.43% over the last year.

*EPS and BVPS data sourced from Yahoo! Finance, all other data sourced from Finviz.

Source: 20 Dividend Stocks Undervalued By Graham