Are There Any Deals Among The Dividend Champions?

| About: Aflac Incorporated (AFL)

Summary

A combination of the discounted cash flow, Graham valuation formula, EBIT and Katesenelson Absolute PE valuation methods were used to derive a fair value.

Out of the 107 dividend champions, only 22 companies have a margin of safety greater than 0%.

A total of 6 dividend champions have both an average and a median margin of safety greater than 25%.

INTRODUCTION

The broader indices have made quite the surge since hitting the recent low back on February 11, 2016. Many investors were expecting a bear market to emerge whereas at this time, the market may be on its way to challenging the old highs. Even this article says that the correction is over and that the market will continue to climb. If that is the case, it may be worth looking at which stocks may still be undervalued. Many investors appreciated my recent article about the fair value of many common dividend growth stocks. I wanted to repeat this exercise, but go over each of the stocks found in David Fish's Dividend Champions, Contenders and Challengers list (found here) to uncover some new stocks that I had never previously considered. I am also answering some readers from my previous article who asked me about specific stocks that I did not cover.

THE VALUATION METHODS

DISCOUNTED CASH FLOW VALUATION

Discounted cash flow [DCF] is the most commonly known valuation tool. The DCF is a valuation method used to estimate the attractiveness of an investment opportunity. Discounted cash flow analysis uses future free cash flow projections and discounts them to arrive at a present value estimate, which is used to evaluate the potential for investment.

BENJAMIN GRAHAM VALUATION FORMULA

The Graham number measures a stock's fundamental value by taking into account the company's earnings per share and book value per share. The Graham number is the upper bound of the price range that a defensive investor should pay for the stock. According to the theory, any stock price below the Graham number is considered undervalued, and thus worth investing in.

EBIT VALUATION

The EBIT Valuation model is primarily an income statement and balance sheet adjustment model to get the fair value of the equity of the stock. The EBIT model takes the EPS and reverse engineers it to come up with a normalized revenue number by reverse engineering all of the margins that it's been achieving until now. And then with that revenue, the main driver behind the model comes down to selecting the valuation multiple for what you want to apply to the stock. EBIT valuation is a simple way to perform a sum of the parts analysis. It takes into consideration revenues, operating margins, cash and equivalents, total debt and shares outstanding. EBIT also has the strength of recognizing that depreciation and amortization are real asset expenses.

KATESENELSON ABSOLUTE PE VALUATION

The Absolute PE valuation is made up of the earnings growth rate, dividend yield, business risk, financial risk and earnings visibility. Essentially, the Absolute PE takes the current PE and then adds or subtracts points to come up with an adjusted PE value. Rather than trying to calculate difficult growth projections, the Absolute PE reverse engineers the PE ratio to come up with a growth rate.

By using these methods, there are four fair values or intrinsic values calculated that take into consideration many different factors of a company. Each has its own strengths and weakness which makes it more powerful to consider all four valuation methods to determine a fair value for a stock.

The following presents all 107 Dividend Champions. The current price is the end of day closing price of March 30, 2016. Each of the valuation methods are found in separate columns. An average and median fair value is calculated using all four valuation methods. The margin of safety between the fair value and the current price is calculated using both the average and median fair value estimates. Those in red show that there is no margin of safety. Those in yellow suggest a margin of safety between 0% and 24.99%. Those in green suggest a margin of safety greater than 25%. A buy price is also included using a margin of safety of 25% from the average and median fair value estimates. The stocks are ordered alphabetically by ticker symbol.

Company

Ticker

Current Price

DCF

EBIT Valuation

Absolute PE

Graham Valuation

Average Fair Value

Average MOS

Average Buy Price (25% MOS)

Median Fair Value

Median MOS

Median Buy Price (25% MOS)

ABM Industries Inc.

(NYSE:ABM)

$36.62

$61.85

$36.60

$48.71

$39.43

$46.65

27.38%

$37.32

$44.07

20.34%

$35.26

Archer Daniels Midland

(NYSE:ADM)

$36.62

$51.85

$36.60

$48.71

$39.43

$44.15

20.56%

$35.32

$44.07

20.34%

$35.26

Automatic Data Processing

(NASDAQ:ADP)

$89.15

$65.30

$79.58

$110.84

$62.96

$79.67

-10.63%

$63.74

$72.44

-18.74%

$57.95

AFLAC Inc.

(NYSE:AFL)

$63.73

$327.42

$302.18

$58.61

$113.28

$200.37

214.41%

$160.30

$207.73

225.95%

$166.18

Air Products & Chem.

(NYSE:APD)

$145.25

$85.69

$125.44

$160.38

$136.31

$126.96

-12.60%

$101.56

$130.88

-9.90%

$104.70

Atmos Energy

(NYSE:ATO)

$74.05

$23.08

$39.97

$84.36

$49.66

$49.27

-33.47%

$39.41

$44.82

-39.48%

$35.85

American States Water

(NYSE:AWR)

$39.81

$14.62

$38.15

$46.91

$21.29

$30.24

-24.03%

$24.19

$29.72

-25.35%

$23.78

C.R. Bard Inc.

(NYSE:BCR)

$202.88

$31.73

$183.60

$137.28

$190.39

$135.75

-33.09%

$108.60

$160.44

-20.92%

$128.35

Becton Dickinson & Co.

(NYSE:BDX)

$152.54

$40.24

$145.18

$147.54

$172.73

$126.42

-17.12%

$101.14

$146.36

-4.05%

$117.09

Franklin Resources

(NYSE:BEN)

$39.14

$55.49

$46.73

$47.22

$50.95

$50.10

28.00%

$40.08

$49.09

25.41%

$39.27

Brown-Forman Class B

(NYSE:BF.B)

$98.53

$45.11

$89.51

$113.08

$55.72

$75.86

-23.01%

$60.68

$72.62

-26.30%

$58.09

Black Hills Corp.

(NYSE:BKH)

$60.76

-$21.42

$160.07

-$1.79

$44.23

$45.27

-25.49%

$36.22

$21.22

-65.08%

$16.98

Bemis Company

(NYSE:BMS)

$52.58

$34.41

$44.28

$60.99

$46.07

$46.44

-11.68%

$37.15

$45.18

-14.08%

$36.14

Brady Corp.

(NYSE:BRC)

$27.10

$0.76

-$3.69

$17.63

$22.28

$9.25

-65.89%

$7.40

$9.20

-66.07%

$7.36

Bowl America Class A

(NYSEMKT:BWL.A)

$14.00

$4.32

$14.06

$13.46

$2.50

$8.59

-38.68%

$6.87

$8.89

-36.50%

$7.11

Commerce Bancshares

(NASDAQ:CBSH)

$45.51

$40.23

$39.55

$46.00

$43.73

$42.38

-6.88%

$33.90

$41.98

-7.76%

$33.58

Cincinnati Financial

(NASDAQ:CINF)

$65.87

$121.99

$144.18

$84.01

$25.04

$93.81

42.41%

$75.04

$103.00

56.37%

$82.40

Colgate-Palmolive Co.

(NYSE:CL)

$70.72

$20.15

$63.38

$72.63

$45.31

$50.37

-28.78%

$40.29

$54.35

-23.15%

$43.48

Clarcor Inc.

(NYSE:CLC)

$58.03

$44.03

$60.66

$58.79

$47.59

$52.77

-9.07%

$42.21

$53.19

-8.34%

$42.55

Clorox Company

(NYSE:CLX)

$127.97

$55.56

$102.14

$149.55

$76.92

$96.04

-24.95%

$76.83

$89.53

-30.04%

$71.62

Carlisle Companies

(NYSE:CSL)

$99.79

$107.54

$95.47

$115.05

$109.31

$106.84

7.07%

$85.47

$108.43

8.65%

$86.74

Computer Services Inc.

(OTCQX:CSVI)

$38.25

$24.33

$38.06

-

-

$31.20

-18.44%

$24.96

$31.20

-18.44%

$24.96

Cintas Corp.

(NASDAQ:CTAS)

$89.73

$78.64

$84.38

$160.27

$85.06

$102.09

13.77%

$81.67

$84.72

-5.58%

$67.78

Community Trust Banc.

(NASDAQ:CTBI)

$35.69

$33.67

$34.45

$45.16

$35.47

$37.19

4.20%

$29.75

$34.96

-2.04%

$27.97

Conn. Water Service

(NASDAQ:CTWS)

$44.78

$16.42

$32.41

$54.37

$30.28

$33.37

-25.48%

$26.70

$31.35

-30.00%

$25.08

Chevron Corp.

(NYSE:CVX)

$95.25

$91.36

-$59.78

$89.46

$14.44

$33.87

-64.44%

$27.10

$51.95

-45.46%

$41.56

California Water Service

(NYSE:CWT)

$27.06

$8.06

$20.30

$30.66

$15.07

$18.52

-31.55%

$14.82

$17.69

-34.65%

$14.15

Donaldson Company

(NYSE:DCI)

$32.09

$25.62

$32.54

$37.77

$28.33

$31.07

-3.19%

$24.85

$30.44

-5.16%

$24.35

Dover Corp.

(NYSE:DOV)

$64.33

$91.80

$67.71

$113.00

$67.79

$85.08

32.25%

$68.06

$79.80

24.04%

$63.84

Consolidated Edison

(NYSE:ED)

$76.48

$14.32

$58.65

$83.10

$44.00

$50.02

-34.60%

$40.01

$51.33

-32.89%

$41.06

Eagle Financial Services

(OTCQX:EFSI)

$22.96

$58.69

$23.37

-

-

$41.03

78.70%

$32.82

$41.03

78.70%

$32.82

Emerson Electric

(NYSE:EMR)

$54.56

$57.78

$53.21

$70.13

$48.89

$57.50

5.39%

$46.00

$55.50

1.71%

$44.40

Erie Indemnity Company

(NASDAQ:ERIE)

$94.16

$194.89

$364.70

$114.27

$66.34

$185.05

96.53%

$148.04

$154.58

64.17%

$123.66

Eaton Vance Corp.

(NYSE:EV)

$33.31

$88.42

$42.81

$41.00

$40.64

$53.22

59.76%

$42.57

$41.91

25.80%

$33.52

Farmers & Merchants Bancorp

(OTCQX:FMCB)

-

-

-

-

-

#DIV/0!

#DIV/0!

#DIV/0!

#NUM!

#NUM!

#NUM!

Federal Realty Inv. Trust

(NYSE:FRT)

$155.94

$16.61

$142.09

$184.17

$91.30

$108.54

-30.39%

$86.83

$116.70

-25.17%

$93.36

H.B. Fuller Company

(NYSE:FUL)

$42.74

$30.88

$40.56

$43.75

$53.89

$42.27

-1.10%

$33.82

$42.16

-1.37%

$33.72

Genuine Parts Co.

(NYSE:GPC)

$99.12

$63.30

$95.25

$119.90

$78.03

$89.12

-10.09%

$71.30

$86.64

-12.59%

$69.31

Gorman-Rupp Company

(NYSEMKT:GRC)

$25.49

$13.83

$27.91

$28.73

$10.91

$20.35

-20.18%

$16.28

$20.87

-18.12%

$16.70

W.W. Grainger Inc.

(NYSE:GWW)

$233.50

$189.20

$248.14

$279.14

$213.70

$232.55

-0.41%

$186.04

$230.92

-1.10%

$184.74

HCP Inc.

(NYSE:HCP)

$32.44

-$28.67

-$76.35

-$7.64

$30.32

-$20.59

-163.46%

-$16.47

-$18.16

-155.96%

-$14.52

Helmerich & Payne Inc.

(NYSE:HP)

$58.31

$37.54

$51.25

$73.63

-$6.25

$39.04

-33.04%

$31.23

$44.40

-23.86%

$35.52

Hormel Foods Corp.

(NYSE:HRL)

$43.95

$23.95

$30.30

$79.39

$30.14

$40.95

-6.84%

$32.76

$30.22

-31.24%

$24.18

Illinois Tool Works

(NYSE:ITW)

$102.63

$82.84

$94.73

$119.69

$98.23

$98.87

-3.66%

$79.10

$96.48

-5.99%

$77.18

Jack Henry & Associates

(NASDAQ:JKHY)

$85.96

$51.31

$67.77

$106.99

$58.67

$71.19

-17.19%

$56.95

$63.22

-26.45%

$50.58

Johnson & Johnson

(NYSE:JNJ)

$108.98

$81.43

$98.80

$140.68

$92.40

$103.33

-5.19%

$82.66

$95.60

-12.28%

$76.48

Kimberly-Clark Corp.

(NYSE:KMB)

$135.71

$28.58

$131.19

$139.76

$97.41

$99.24

-26.88%

$79.39

$114.30

-15.78%

$91.44

Coca-Cola Company

(NYSE:KO)

$46.58

$20.61

$45.12

$41.65

$26.65

$33.51

-28.06%

$26.81

$34.15

-26.69%

$27.32

Lancaster Colony Corp.

(NASDAQ:LANC)

$111.60

$58.18

$90.67

$130.86

$61.71

$85.36

-23.52%

$68.28

$76.19

-31.73%

$60.95

Leggett & Platt Inc.

(NYSE:LEG)

$47.95

$11.89

$40.74

$55.89

$47.84

$39.09

-18.48%

$31.27

$44.29

-7.63%

$35.43

Lowe's Companies

(NYSE:LOW)

$76.02

$67.72

$55.15

$70.42

$106.94

$75.06

-1.27%

$60.05

$69.07

-9.14%

$55.26

McDonald's Corp.

(NYSE:MCD)

$125.83

$86.77

$106.34

$141.74

$99.50

$108.59

-13.70%

$86.87

$102.92

-18.21%

$82.34

Mercury General Corp.

(NYSE:MCY)

$55.84

$79.40

$121.41

$59.63

$44.56

$76.25

36.55%

$61.00

$69.52

24.49%

$55.61

Medtronic plc

(NYSE:MDT)

$75.42

$26.81

$72.00

$75.26

$69.79

$60.97

-19.17%

$48.77

$70.90

-6.00%

$56.72

MDU Resources

(NYSE:MDU)

$19.46

-$51.91

$8.54

-$83.06

$16.01

-$27.61

-241.86%

-$22.08

-$21.69

-211.43%

-$17.35

MGE Energy Inc.

(NASDAQ:MGEE)

$52.29

$28.27

$40.76

$69.60

$32.13

$42.69

-18.36%

$34.15

$36.45

-30.30%

$29.16

McGraw Hill Financial Inc.

(NYSE:MHFI)

$98.94

$80.49

$69.97

$95.02

$105.63

$87.78

-11.28%

$70.22

$87.76

-11.30%

$70.20

McCormick & Co.

(NYSE:MKC)

$99.75

$49.50

$84.31

$111.11

$61.98

$76.73

-23.08%

$61.38

$73.15

-26.67%

$58.52

3M Company

(NYSE:MMM)

$166.75

$122.42

$148.72

$216.46

$141.37

$157.24

-5.70%

$125.79

$145.05

-13.02%

$116.04

Altria Group Inc.

(NYSE:MO)

$62.58

$42.25

$58.58

$78.00

$54.42

$58.31

-6.82%

$46.65

$56.50

-9.72%

$45.20

MSA Safety Inc.

(NYSE:MSA)

$48.43

$49.68

$46.84

$67.42

$63.99

$56.98

17.66%

$45.59

$56.84

17.35%

$45.47

Middlesex Water Co.

(NASDAQ:MSEX)

$31.14

$7.77

$23.22

$34.75

$17.97

$20.93

-32.80%

$16.74

$20.60

-33.86%

$16.48

NACCO Industries

(NYSE:NC)

$57.57

-$65.07

-$154.08

-$89.05

$57.46

-$62.69

-208.88%

-$50.15

-$77.06

-233.85%

-$61.65

Nordson Corp.

(NASDAQ:NDSN)

$76.34

$63.94

$79.27

$78.22

$80.14

$75.39

-1.24%

$60.31

$78.75

3.15%

$63.00

National Fuel Gas

(NYSE:NFG)

$50.00

-$68.42

-$30.94

-$22.73

$32.72

-$22.34

-144.69%

-$17.87

-$26.84

-153.67%

-$21.47

National Retail Properties

(NYSE:NNN)

$46.46

$2.49

$41.71

$53.51

$30.84

$32.14

-30.83%

$25.71

$36.28

-21.92%

$29.02

Nucor Corp.

(NYSE:NUE)

$48.31

$31.47

$43.31

$49.93

$47.70

$43.10

-10.78%

$34.48

$45.51

-5.81%

$36.40

Northwest Natural Gas

(NYSE:NWN)

$54.15

$5.34

$43.36

$51.67

$26.53

$31.73

-41.41%

$25.38

$34.95

-35.47%

$27.96

Old Republic International

(NYSE:ORI)

$18.30

$64.14

$61.65

$25.33

$17.24

$42.09

130.00%

$33.67

$43.49

137.65%

$34.79

PepsiCo Inc.

(NYSE:PEP)

$102.69

$49.22

$97.14

$113.70

$77.35

$84.35

-17.86%

$67.48

$87.25

-15.04%

$69.80

Procter & Gamble Co.

(NYSE:PG)

$82.68

$30.57

$76.57

$97.73

$53.92

$64.70

-21.75%

$51.76

$65.25

-21.09%

$52.20

Parker-Hannifin Corp.

(NYSE:PH)

$110.99

$119.22

$102.35

$135.63

$99.29

$114.12

2.82%

$91.30

$110.79

-0.18%

$88.63

Pentair Ltd.

(NYSE:PNR)

$54.07

-$20.80

$95.51

$4.56

$74.52

$38.45

-28.89%

$30.76

$39.54

-26.87%

$31.63

Piedmont Natural Gas

(NYSE:PNY)

$59.80

$7.41

$45.45

$57.74

$26.53

$34.28

-42.67%

$27.43

$35.99

-39.82%

$28.79

PPG Industries Inc.

(NYSE:PPG)

$111.90

$88.94

$109.55

$124.58

$124.03

$111.78

-0.11%

$89.42

$116.79

4.37%

$93.43

Raven Industries

(NASDAQ:RAVN)

$15.75

$4.91

$21.22

$10.23

$7.86

$11.06

-29.81%

$8.84

$9.05

-42.57%

$7.24

RLI Corp.

(NYSE:RLI)

$68.05

$82.71

$98.96

$74.08

$21.51

$69.32

1.86%

$55.45

$78.40

15.20%

$62.72

RPM International Inc.

(NYSE:RPM)

$47.34

$26.56

$44.69

$53.11

$45.88

$42.56

-10.10%

$34.05

$45.29

-4.34%

$36.23

Stepan Company

(NYSE:SCL)

$56.05

$44.29

$52.30

$57.81

$62.83

$54.31

-3.11%

$43.45

$55.06

-1.78%

$44.04

SEI Investments Company

(NASDAQ:SEIC)

$42.81

$49.84

$46.90

$52.77

$43.27

$48.20

12.58%

$38.56

$48.37

12.99%

$38.70

Sherwin-Williams Co.

(NYSE:SHW)

$284.43

$241.17

$261.53

$322.87

$283.40

$277.24

-2.53%

$221.79

$272.47

-4.21%

$217.97

SJW Corp.

(NYSE:SJW)

$36.94

$13.78

$31.50

$39.21

$25.92

$27.60

-25.28%

$22.08

$28.71

-22.28%

$22.97

Sonoco Products Co.

(NYSE:SON)

$48.70

$31.44

$42.91

$58.37

$38.75

$42.87

-11.98%

$34.29

$40.83

-16.16%

$32.66

1st Source Corp.

(NASDAQ:SRCE)

$32.20

$23.87

$32.78

$37.75

$34.18

$32.15

-0.17%

$25.72

$33.48

3.98%

$26.78

Questar Corp.

(NYSE:STR)

$24.93

$6.11

$21.54

$26.80

$11.59

$16.51

-33.77%

$13.21

$16.57

-33.55%

$13.25

Stanley Black & Decker

(NYSE:SWK)

$105.17

$92.61

$89.09

$114.47

$116.67

$103.21

-1.86%

$82.57

$103.54

-1.55%

$82.83

Sysco Corp.

(NYSE:SYY)

$46.63

$17.78

$38.77

$46.68

$34.12

$34.34

-26.36%

$27.47

$36.45

-21.84%

$29.16

AT&T Inc.

(NYSE:T)

$39.37

$16.00

$34.86

$47.96

$37.58

$34.10

-13.39%

$27.28

$36.22

-8.00%

$28.98

Telephone & Data Sys.

(NYSE:TDS)

-

-

-

-

-

#DIV/0!

#DIV/0!

#DIV/0!

#NUM!

#NUM!

#NUM!

Target Corp.

(NYSE:TGT)

$83.60

$94.04

$74.14

$98.93

$106.73

$93.46

11.79%

$74.77

$96.49

15.41%

$77.19

First Financial Corp.

(NASDAQ:THFF)

$34.37

$21.73

$35.43

$38.28

$19.46

$28.73

-16.42%

$22.98

$28.58

-16.85%

$22.86

Tompkins Financial Corp.

(NYSEMKT:TMP)

$64.41

$42.28

$44.25

$70.34

$63.15

$55.01

-14.60%

$44.00

$53.70

-16.63%

$42.96

Tennant Company

(NYSE:TNC)

$51.85

$59.58

$62.09

$64.79

$48.70

$58.79

13.38%

$47.03

$60.84

17.33%

$48.67

Tootsie Roll Industries

(NYSE:TR)

$34.53

$14.31

$31.57

$43.24

$8.44

$24.39

-29.37%

$19.51

$22.94

-33.57%

$18.35

T. Rowe Price Group

(NASDAQ:TROW)

$73.90

$93.05

$83.53

$101.48

$90.72

$92.20

24.76%

$73.76

$91.89

24.34%

$73.51

United Bankshares Inc.

(NASDAQ:UBSI)

$37.01

$23.24

$35.03

$47.36

$27.90

$33.38

-9.80%

$26.71

$31.47

-14.98%

$25.17

UGI Corp.

(NYSE:UGI)

$40.44

$4.77

$24.52

$46.58

$31.36

$26.81

-33.71%

$21.45

$27.94

-30.91%

$22.35

Universal Health Realty Trust

(NYSE:UHT)

$56.14

$10.12

$53.25

$92.17

$18.76

$43.58

-22.38%

$34.86

$36.01

-35.87%

$28.80

Universal Corp.

(NYSE:UVV)

$57.20

$44.80

$61.49

$78.98

$28.92

$53.55

-6.39%

$42.84

$53.15

-7.09%

$42.52

Valspar Corp.

(NYSE:VAL)

$106.57

$81.86

$79.98

$117.43

$100.20

$94.87

-10.98%

$75.89

$91.03

-14.58%

$72.82

VF Corp.

(NYSE:VFC)

$65.24

$58.93

$63.64

$80.67

$67.30

$67.64

3.67%

$54.11

$65.47

0.35%

$52.38

Vectren Corp.

(NYSE:VVC)

$50.78

$20.73

$41.68

$55.84

$34.61

$38.22

-24.74%

$30.57

$38.15

-24.88%

$30.52

Walgreens Boots Alliance Inc.

(NASDAQ:WBA)

$83.63

$76.96

$81.73

$90.77

$96.56

$86.51

3.44%

$69.20

$86.25

3.13%

$69.00

Weyco Group Inc.

(NASDAQ:WEYS)

$26.56

$20.57

$28.22

$32.68

$27.09

$27.14

2.18%

$21.71

$27.66

4.12%

$22.12

WGL Holdings Inc.

(NYSE:WGL)

$72.14

$16.32

$48.27

$80.20

$44.74

$47.38

-34.32%

$37.91

$46.51

-35.54%

$37.20

Wal-Mart Stores Inc.

(NYSE:WMT)

$68.80

$46.42

$72.83

$82.65

$46.92

$62.21

-9.59%

$49.76

$59.88

-12.97%

$47.90

ExxonMobil Corp.

(NYSE:XOM)

$84.52

$85.26

$86.75

$90.04

$51.43

$78.37

-7.28%

$62.70

$86.01

1.76%

$68.80

Click to enlarge

This exercise has found that only 22 out of the 107 have some margin of safety [MOS] above 0%. This number decreases to 6 companies whose stock price is currently trading with an average and median margin of safety of 25% or more. These 6 companies are AFL, CINF, EV, ERIE, BEN, and ORI.

There are some companies that have an average margin of safety above 25% while the median margin of safety is just below. This companies include ABM (27.4% vs. 20.3%), DOV (32.3% vs. 24.0%) and MCY (36.6% vs. 24.5%).

Two companies deserve honorable mention because they have an attractive margin of safety above 20%. These companies are ADM (20.6%) and TROW (which is just a fraction of a percent below 25%).

There are only 3 companies with a 10% MOS of at least 10%. These companies are TGT, SEIC, and MSA.

There are 5 companies with a MOS between 0% and 10%. These companies are CSL, EMR, VFC, WBA and WEYS.

There are a few stocks where investors would have to make a judgment call. For example, CTAS has an average MOS of 13.8% but the median MOS is -5.6%. Other examples include RLI (1.9% vs. 15.2%) or XOM (-7.3% vs. 1.8%). This is the result of the large range between the estimated fair values. Investors would have to decide whether they accept the average or the median, or whether they should take the middle of both. Because the average and the median were in these cases fairly diverse, I would personally review each valuation method more closely for each of those stocks if I was really interested in them.

There were also two companies (FMBC and TDS) were I did not obtain the data needed to complete the calculations for the valuation methods. I was also restricted to the DCF and EBIT valuation methods for CSVI and EFSI because I could not obtain the information needed to complete the other two valuation methods. That is why I do not consider EFSI as a company with a MOS above 25% even though the average and median MOS for this company is 78.7%. That is something investors will have to decide for themselves if it is sufficient. My thought is, if I cannot get the data to complete these valuations, I am most likely not getting the data to properly evaluate the company for further due diligence.

In this next section, I am going to go over the 6 companies that have a MOS of at least 25%.

AFLAC INC.

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Aflac Inc. is a general business holding company and acts as a management company. The Company sells supplemental health and life insurance in the United States and Japan.

AFL has an eye popping average margin of safety of 214.4% and a median margin of safety of 226.0%. These valuations are fueled by the DCF and EBIT valuations which estimates that the fair value of the company is $327.42 and $302.18 respectfully. At current prices, that is nearly a five bagger. However, the Absolute PE and Graham valuations believe that the company's fair value is more modest at $58.61 and $113.28. With this kind of variance in estimated fair prices, a serious review of the financials of the company and its growth prospects would be justified.

AFL has a current yield of 2.57% and a payout ratio of 28.0%. AFL raised its dividend 5.1% back on November 16, 2015. This latest increase is below AFL's previous raise (6.8%), 3 year (5.6%) and 5 year (6.7%) growth rates. It has increased its dividend each year for 33 years.

AFL earnings are affected considerably by the value of the yen. A weak yen against the US dollar takes a "bite" of the company's earnings. Furthermore, Japan's economy continues to shrink and the country has recently adopted negative interest rates in its efforts to stimulate its economy. However, AFL has had a series of analyst upgrades recently and the CEO sees supplemental healthcare policies driving future earnings because of the increase costs to obtain healthcare. Investors looking to get into AFL may have the luxury of waiting for the dividend yield to reach 3.0% (price of $54.00) because the stock price has been trading within a range of $67.86 and $54.89 for over 2 years. If AFL truly had the potential to be five bagger, I don't suspect that the stock would have been trading in this range. It is likely that the stock price remains depressed due to uncertainty with the Japanese economy and the US dollar's strength against the yen during this time. If there are changes to either of these, it may allow AFL's stock price to rise.

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CINCINNATI FINANCIAL

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Cincinnati Financial Corp is a property casualty insurance company. Its operating segments are Commercial lines insurance, Personal lines insurance, Excess and surplus lines insurance, Life insurance and Investments.

The estimated average fair value of CINF is $93.81 while the median fair value is $103.00. This represents an average margin of safety of 42.4% and median margin of safety of 56.4% or a potential upside of over 40%. The estimated fair values would increase further if the Graham valuation estimated fair value of $25.04 were removed. If it was removed, the estimated average fair value would become $116.73 representing an upside of 77.2%. The median fair value rises to $121.99 with an upside of 85.2%. The DCF and EBIT valuations see the company doubling from its current price.

The dividend yield currently stands at 2.91% with a payout ratio of 48.1%. CINF raised its dividend by 4.3% back on January 29 th, 2016, making it the 56 consecutive annual increase. This raise is pretty much in line with the previous year (4.6%) and 3 year (4.1%) growth rates. It will make a nice contribution to increasing the 5 year growth rate which sits at only 2.8%.

CINF stock price has been on a tear since 2012 where it has more than doubled up till now and continues to rise despite the low interest rate environment in the US. The uncertainty about future interest rates has not seemed to impact the stock price either. CINF doesn't get a lot of analyst coverage or analysis by Seeking Alpha contributors but the company was rated a buy back in September 2015 because of the company's push into the personal lines space, as well as expansion into the excess and surplus lines business. This move by the company was cited as providing good growth potential. CINF was also added today to Zacks Equity Research's strong buy list.

There are a few valuation ratios that I find to be a telling tale why CINF has risen as it has.

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Following 2011, there is very little in red which means that these ratios generally improved year over year and all the ratios were at their best in 2015. CINF is considered a free cash flow generator since its FCF/S over the past several years has been above 10.0%. This is good for future dividend payments. The ROE has tripled from its low in 2011 showing that the company is has improved their ability since the financial crisis to generate profits from shareholders equity. Also, the ROIC and CROIC continue to improve showing that the company is capable of generating more cash each year. These are all positive signs.

EATON VANCE CORP

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Eaton Vance Corp along with its subsidiaries is engaged in managing investment funds & providing investment management and advisory services to high-net-worth individuals and institutions in the United States, Europe and other international markets.

EV has an average margin of safety of 59.8% (an average fair value of $53.22) and a median margin of safety of 25.8% (median fair value of $41.91). There is quite the difference between the two because the DCF estimates the fair value at $88.42 while the other three methods have a near consensus. I would personally go with the majority but would hope that the stock price is even more undervalued.

A dividend yield of 3.16% is currently available. EV has a dividend payout ratio of 47.1%. The company has paid a dividend for 35 years with the last increase having occurred on October 15, 2015 when the dividend was raised 6%. This is a stark difference from the previous increase of 11.5% and 33.0% lower than the 3 year (9.2%) and 5 year (9.0%) growth rates.

EV is the first company to introduce Exchange-traded managed funds [ETMFs] are a hybrid of ETF's and mutual funds in that they are actively managed like mutual funds, but trade like ETFs, only without the need to disclose holdings on a daily basis. The first ETMF was launched on February 26, 2016. The demand for such products remains to be seen but demonstrates the company's ability to innovate. Furthermore, EV will enjoy some exclusivity in this space for some time since Precidian Investments was denied for the second time by the SEC for their ETMF product. EV has also been active in repurchasing its own shares. It reported on February 24, 2016 that it had repurchased 2.3M shares for $73.3M.

ERIE INDEMNITY COMPANY

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Erie Indemnity Co provides sales, underwriting and policy issuance services to the policyholders of Erie Insurance Exchange. It also operates as a property & casualty insurer through its wholly-owned subsidiaries.

ERIE has an average fair value of $185.05 suggesting a margin of safety or potential upside of 96.5%. The median fair value is $154.58 suggesting a margin of safety or potential upside of 64.2%. The EBIT valuation estimates that the stock could more than triple from its current price but it is also considered overvalued by the Graham valuation.

ERIE raised its dividend 7.2% back on December 2, 2015. The current yield is 3.14% but has the highest payout ratio of all those highlighted here at 83.4%. ERIE has been a champion now for 2 years having raised its dividend annually for the past 26 years. The last dividend increase should come as no surprise since the company's previous increase, and the 3 and 5 year growth rates are all 7.2%.

ERIE gets very little attention from SA contributors and analysts alike. So I will add a little commentary using some of the valuation ratios.

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ERIE appears to have made improvements in most aspects in 2012 however 2014 appears to have been a down year. The year 2015 appears to have improved marginally compared to 2014, but it is progress. ERIE's has gotten better since 2011 in converting sales into free cash flow and has been a free cash flow generating company for 8 out of the past 10 years. ROE has been consistently above 20% for the past 4 years. What is concerning is the inconsistency in ERIE's ROIC and CROIC. These ratios could be saying something about the management's ability to navigate the business through the industry's cyclicality.

FRANKLIN RESOURCES

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Franklin Resources Inc. is an investment management company. The Company's services include fund administration, sales, distribution, marketing, shareholder servicing, trustee, custody and other fiduciary services.

BEN has the lowest margin of safety among the six companies. The average fair value is $50.10 for a margin of safety of 28.0% while the median fair value is $49.09 for a margin of safety of 25.4%. All four of the valuation methods are close to each other which suggests that BEN's estimated fair value is the most reliable of the six companies because there is close consensus on the fair value.

BEN currently yields 1.84% with a 20.1% payout ratio. The company has paid an annually growing dividend for 36 years. The company raised its dividend twice in 2015. BEN raised its dividend by 25.0% on June 16, 2015 and then by 20.0% on December 15, 2015. The company also converted their dividend from quarterly payments to monthly payments starting last month. This is the one company whose dividend appears to be increasing on a 1 year (25.0%), 3 year (17.8%), and 5 year (15.4%) basis.

BEN has been struggling of late. The company has suffered from serious outflows from its investment products. It has seen withdrawals of billions of dollars from the mutual funds it operates over many months. In January 2016 for example, BEN shed nearly $36B in total assets in one month. A Citi analyst claimed that "fundamentally, the outlook is quite negative for the asset management industry in 2016". The stock price has reflected the troubles facing BEN as it has dropped nearly 50% since December 2014. The stock price has rebounded along with the market from $32.21 back in February to $39.14. The stocks 52 week high is actually $52.76 which is a few dollars higher than the fair value estimates I have generated.

OLD REPUBLIC INTERNATIONAL

ORI fair value Click to enlarge

Old Republic International Corporation is engaged in insurance underwriting and related services. It conducts its operations through General Insurance, Title Insurance, and the Republic Financial Indemnity and consumer credit indemnity Run-off Business.

The average and median fair value estimates show the potential of ORI to more than double from its current price. The average fair value is $42.09 (margin of safety of 130.0%) and the median fair value is $43.49 (margin of safety of 137.7%). The DCF and EBIT valuations have generated estimates that suggest the stock could more than triple, whereas the Absolute P/E and Graham valuations suggest that the stock is or near its fair value estimate.

ORI has the highest dividend yield of the six companies coming in at 4.10%. The payout ratio is 51.9%. ORI has paid a dividend for 35 consecutive years. The dividend growth for ORI has been very poor with the 1, 3, and 5 year growth rates of only 1.4%. The company held true to its form with a dividend increase of 1.4% that was announced on February 23, 2016.

ORI valuation Click to enlarge

There is little coverage for the stock. In fact there was a three year period in which none of SA contributors wrote about ORI. It wasn't until 2015 that SA contributors began writing about ORI again and the articles have all been positive to date.

Apart from 2013 and a little bit in 2011, ORI has made steady progress in improving its business and generating cash flows. 2012 appears to be the year where the company turned things around considerably. This is where for the first time in the table that the ROE exceeded 10% as did ROIC. Although it had a serious setback in 2013, ORI did rebound again in 2014. ORI has become a more consistent free cash flow generating company in 3 of the previous 4 years. As ORI turned itself around, the stock price reacted accordingly. In just over a year, ORI's stock price doubled. It suffered a bit in 2014 and 2015, but it has since climbed higher again.

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As one final note, there are several dividend champions that have not raised their dividend for over a year. These companies are BWL.A, CVX, EFSI, THFF, HP, PH, RAVN and TNC. Without a dividend increase soon, these champions may lost their status.

CONCLUSION

It is probably not surprising that the majority of the dividend champions are overvalued since many dividend growth investors like to invest in the champions because of their long and consistent dividend history. These companies also tend to trade with a premium valuation as well. However, there are moments when some come on sale or whose potential has not yet been realized. This potential however may also be held back due to headwinds such as the case of AFL that is beyond their own control but has a direct impact on their business.

Although the six companies I have gone over in more detail have a large margin of safety, many of the fair value estimates generated by the 4 valuation methods had a considerable range in values. It would be wise to look at the company's financials more in-depth to get a better understanding why some of the estimates were lower while others were higher.

I hope you have found this as useful as I have. Remember:"The determining trait of the enterprising investor is his willingness to devote time and care to the selection of securities that are both sound and more attractive than the average. Over many decades, an enterprising investor of this sort could expect a worthwhile reward for his extra skill and effort in the form of a better average return than that realized by the passive investor." (Benjamin Graham)

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CINF over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Nothing in this article should be construed as a recommendation to buy or sell any equities.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.