Are There Any Deals Among The Dividend Contenders? Part II

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Includes: HCN, JW.A, K, KR, LARK, LECO, LLL, LLTC, LNN, LSTR, LYBC, MATW, MCHP, MDNB, MDP, MGRC, MLAB, MMP, MNRO, MON, MSFT, MSM, MUR, MXIM, MYBF, NATL, NEE, NEU, NHC, NHI, NIDB, NJR, NKE, NKSH, NOC, NSC, NUS, NWE, NWFL, O, ODC, OHI, OKE, OKS, OMI, OXY, PAA, PB, PBCT, PDER, PII, POR, PPL, PRGO, PSBQ, PX, QCOM, R, RAI, RBA, RBC, RBCAA, RGCO, RGLD, RHI, RNR, ROL, ROP, ROST, RSG, RTN, SBSI, SCG, SEP, SHPG, SJI, SKT, SLGN, SNN, SO, SPAN, SR, SRE, STE, STON, SWX, SXL, SXT, SYK, TCP, THVB, TIF, TJX, TLP, TMK, TPL, TRI, TRV, TXN, UBA, UMBF, UTMD, UTX, VGR, VMI, VSEC, VZ, WABC, WEC, WHG, WLK, WM, WMB, WPC, WR, WRB, WSM, WST, XEL, XLNX, YORW, YUM
by: Accelerating Dividends

Summary

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

Out of the first 123 dividend contenders covered in this article, 24 companies had a margin of safety above 0%.

A total of 7 dividend contenders have both an average and a median margin of safety greater than 25%.

INTRODUCTION

This is part two of my series in evaluating the fair value of the members of the dividend contenders from David Fish's Dividend Champion, Challenger and Contender list (available here). I have previously evaluated the champions (here) and several common dividend stocks (here). There are a total of 247 dividend contenders. This article covers the 123 remaining and bottom half of the dividend contenders. For those of you who are new to this series, the valuation methods are described below.

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 P/E VALUATION

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

ANALYSIS

The following presents 123 Dividend Contenders. The current price is the end of day closing price of April 15, 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 P/E

Graham Valuation

Average Fair Value

Average MOS

Average Buy Price (25% MOS)

Median Fair Value

Median MOS

Median Buy Price (25% MOS)

Welltower Inc.

(NYSE:HCN)

$69.81

$5.54

$76.64

$131.08

$62.28

$68.89

-1.33%

$55.11

$69.46

-0.50%

$55.57

John Wiley & Sons Inc.

(NYSE:JW.A)

$48.00

$30.24

$46.26

$60.27

$19.71

$39.12

-18.50%

$31.30

$38.25

-20.31%

$30.60

Kellogg Company

(NYSE:K)

$76.46

$10.74

$71.98

$71.77

$52.47

$51.74

-32.33%

$41.39

$62.12

-18.75%

$49.70

Kroger Company

(NYSE:KR)

$37.07

$24.56

$34.72

$40.00

$39.41

$34.67

-6.47%

$27.74

$37.07

-0.01%

$29.65

Landmark Bancorp Inc.

(NASDAQ:LARK)

$25.75

$34.34

$27.79

$29.87

$35.58

$31.90

23.86%

$25.52

$32.11

24.68%

$25.68

Lincoln Electric Holdings

(NASDAQ:LECO)

$59.51

$26.71

$62.15

$69.64

$44.25

$50.69

-14.83%

$40.55

$53.20

-10.60%

$42.56

Laclede Group Inc.

(NYSE:LG)

$66.76

$7.75

$46.15

$67.91

$41.11

$40.73

-38.99%

$32.58

$43.63

-34.65%

$34.90

L-3 Communications Holdings Inc.

(NYSE:LLL)

$119.90

-$73.58

$141.79

-$106.30

$101.03

$15.74

-86.88%

$12.59

$13.73

-88.55%

$10.98

Linear Technology Corp.

(NASDAQ:LLTC)

$45.12

$43.56

$45.05

$59.85

$35.48

$45.99

1.92%

$36.79

$44.31

-1.81%

$35.44

Lockheed Martin

(NYSE:LMT)

$225.44

$172.30

$189.78

$261.88

$209.73

$208.42

-7.55%

$166.74

$199.76

-11.39%

$159.80

Lindsay Corp.

(NYSE:LNN)

$71.82

$51.10

$69.66

$81.21

$42.01

$61.00

-15.07%

$48.80

$60.38

-15.93%

$48.30

Landstar System Inc.

(NASDAQ:LSTR)

$64.99

$69.33

$72.29

$77.68

$62.39

$70.42

8.36%

$56.34

$70.81

8.96%

$56.65

Lyons Bancorp Inc.

(OTCPK:LYBC)

$30.00

-

-

-

-

#DIV/0!

#DIV/0!

#DIV/0!

#NUM!

#NUM!

#NUM!

Matthews International

(NASDAQ:MATW)

$50.97

$26.57

$50.27

$47.02

$61.00

$46.22

-9.33%

$36.97

$48.65

-4.56%

$38.92

Microchip Technology Inc.

(NASDAQ:MCHP)

$49.27

$38.75

$56.59

$48.85

$40.62

$46.20

-6.23%

$36.96

$44.74

-9.20%

$35.79

Minden Bancorp Inc.

(OTCPK:MDNB)

$22.14

$34.93

$0.79

-

-

$17.86

-19.33%

$14.29

$17.86

-19.33%

$14.29

Meredith Corp.

(NYSE:MDP)

$47.34

$30.52

$47.74

$55.96

$38.55

$43.19

-8.76%

$34.55

$43.15

-8.86%

$34.52

McGrath RentCorp

(NASDAQ:MGRC)

$24.03

$17.08

$30.03

$29.53

$28.36

$26.25

9.24%

$21.00

$28.95

20.45%

$23.16

Mesa Laboratories Inc.

(NASDAQ:MLAB)

$98.07

$39.64

$96.77

$100.86

$53.48

$72.69

-25.88%

$58.15

$75.13

-23.40%

$60.10

Magellan Midstream Partners LP

(NYSE:MMP)

$67.49

$45.37

$70.50

$83.50

$52.37

$62.94

-6.75%

$50.35

$61.44

-8.97%

$49.15

Monro Muffler Brake Inc.

(NASDAQ:MNRO)

$69.19

$46.27

$64.93

$74.30

$49.16

$58.67

-15.21%

$46.93

$57.05

-17.55%

$45.64

Monsanto Company

(NYSE:MON)

$88.95

$89.17

$92.17

$120.02

$91.54

$98.23

10.43%

$78.58

$91.86

3.27%

$73.48

Microsoft Corp.

(NASDAQ:MSFT)

$55.36

$35.63

$46.39

$61.56

$46.54

$47.53

-14.14%

$38.02

$46.47

-16.07%

$37.17

MSC Industrial Direct Co. Inc.

(NYSE:MSM)

$74.71

$56.98

$74.41

$83.97

$58.26

$68.41

-8.44%

$54.72

$66.34

-11.21%

$53.07

Murphy Oil Corp.

(NYSE:MUR)

$28.89

-$195.89

-$39.29

-$56.32

-$27.17

-$79.67

-375.76%

-$63.73

-$47.81

-265.47%

-$38.24

Maxim Integrated Products

(NASDAQ:MXIM)

$36.81

$18.76

$33.24

$39.45

$29.90

$30.34

-17.58%

$24.27

$31.57

-14.24%

$25.26

Muncy Bank Financial Inc.

(OTCPK:MYBF)

$29.95

-

-

-

-

#DIV/0!

#DIV/0!

#DIV/0!

#NUM!

#NUM!

#NUM!

National Interstate Corp.

(NASDAQ:NATL)

$30.59

$139.51

$35.78

$30.83

$27.51

$58.41

90.94%

$46.73

$33.31

8.88%

$26.64

NextEra Energy

(NYSE:NEE)

$116.15

$44.53

$112.25

$132.84

$88.35

$94.49

-18.65%

$75.59

$100.30

-13.65%

$80.24

NewMarket Corp.

(NYSE:NEU)

$404.32

$219.53

$376.21

$476.20

$222.96

$323.73

-19.93%

$258.98

$299.59

-25.90%

$239.67

National Healthcare Corp.

(NYSEMKT:NHC)

$63.16

$48.86

$70.34

$69.04

$18.54

$51.70

-18.15%

$41.36

$58.95

-6.67%

$47.16

National Health Investors

(NYSE:NHI)

$67.43

$38.15

$75.71

$89.33

$60.21

$65.85

-2.34%

$52.68

$67.96

0.79%

$54.37

Northeast Indiana Bancorp

(OTCQB:NIDB)

$30.00

$40.24

-$2.92

-

-

$18.66

-37.80%

$14.93

$18.66

-37.80%

$14.93

New Jersey Resources

(NYSE:NJR)

$35.83

$23.02

$13.33

$39.36

$23.08

$24.70

-31.07%

$19.76

$23.05

-35.67%

$18.44

Nike Inc.

(NYSE:NKE)

$59.49

$45.45

$49.10

$74.15

$47.81

$54.13

-9.01%

$43.30

$48.46

-18.55%

$38.76

National Bankshares

(NASDAQ:NKSH)

$35.89

$21.40

$35.29

$41.85

$17.37

$28.98

-19.26%

$23.18

$28.35

-21.02%

$22.68

Northrop Grumman

(NYSE:NOC)

$200.13

$164.95

$176.30

$222.38

$171.11

$183.69

-8.22%

$146.95

$173.71

-13.20%

$138.96

Norfolk Southern

(NYSE:NSC)

$82.14

$80.25

$87.84

$96.53

$90.75

$88.84

8.16%

$71.07

$89.30

8.71%

$71.44

Nu Skin Enterprises Inc.

(NYSE:NUS)

$39.77

$34.08

$42.93

$50.91

$40.60

$42.13

5.93%

$33.70

$41.77

5.02%

$33.41

NorthWestern Corp.

(NYSE:NWE)

$60.23

$14.82

$39.88

$65.86

$41.66

$40.56

-32.67%

$32.44

$40.77

-32.31%

$32.62

Norwood Financial

(NASDAQ:NWFL)

$28.52

-$5.31

$20.68

$33.11

-

$16.16

-43.34%

$12.93

$20.68

-27.49%

$16.54

Realty Income Corp.

(NYSE:O)

$62.67

-$3.90

$50.59

$59.37

$38.44

$36.13

-42.36%

$28.90

$44.52

-28.97%

$35.61

Oil-Dri Corp. of America

(NYSE:ODC)

$33.91

$15.80

$29.46

$39.91

-

$28.39

-16.28%

$22.71

$29.46

-13.12%

$23.57

Omega Healthcare Investors

(NYSE:OHI)

$34.99

$4.20

$35.72

$45.50

$34.78

$30.05

-14.12%

$24.04

$35.25

0.74%

$28.20

ONEOK Inc.

(NYSE:OKE)

$31.73

-$24.57

$23.38

$33.59

$21.30

$13.43

-57.69%

$10.74

$22.34

-29.59%

$17.87

ONEOK Partners LP

(NYSE:OKS)

$32.23

$13.09

$24.22

$32.56

$27.50

$24.34

-24.47%

$19.47

$25.86

-19.76%

$20.69

Owens & Minor Inc.

(NYSE:OMI)

$40.53

$21.48

$37.14

$46.21

$29.50

$33.58

-17.14%

$26.87

$33.32

-17.79%

$26.66

Occidental Petroleum

(NYSE:OXY)

$74.32

-$161.07

$35.43

-$36.91

-$7.18

-$42.43

-157.09%

-$33.95

-$22.05

-129.66%

-$17.64

Plains All American Pipeline LP

(NYSE:PAA)

$22.88

$26.13

$19.39

$25.93

$20.09

$22.89

0.02%

$18.31

$23.01

0.57%

$18.41

Prosperity Bancshares

(NYSE:PB)

$49.40

$60.05

$47.98

$60.94

$71.08

$60.01

21.48%

$48.01

$60.50

22.46%

$48.40

People's United Financial

(NASDAQ:PBCT)

$16.13

$10.77

$14.44

$18.96

$14.77

$14.74

-8.65%

$11.79

$14.61

-9.45%

$11.68

Pardee Resources Company

(OTCPK:PDER)

$158.00

-

-

-

-

#DIV/0!

#DIV/0!

#DIV/0!

#NUM!

#NUM!

#NUM!

Polaris Industries

(NYSE:PII)

$95.27

$141.91

$124.71

$121.08

$133.46

$130.29

36.76%

$104.23

$129.09

35.49%

$103.27

Portland General Electric Co.

(NYSE:POR)

$39.18

$12.14

$37.18

$41.80

$29.68

$30.20

-22.92%

$24.16

$33.43

-14.68%

$26.74

PPL Corp.

(NYSE:PPL)

$37.05

-$4.43

$38.62

$18.00

$27.66

$19.96

-46.12%

$15.97

$22.83

-38.38%

$18.26

Perrigo Company plc

(NYSE:PRGO)

$128.03

$8.79

$198.50

$0.45

$194.26

$100.50

-21.50%

$80.40

$101.53

-20.70%

$81.22

PSB Holdings Inc.

(OTCPK:PSBQ)

$45.25

$52.63

$39.60

-

-

$46.12

1.91%

$36.89

$46.12

1.91%

$36.89

Praxair Inc.

(NYSE:PX)

$115.53

$72.51

$112.86

$123.79

$88.96

$99.53

-13.85%

$79.62

$100.91

-12.65%

$80.73

Qualcomm Inc.

(NASDAQ:QCOM)

$51.82

$81.64

$69.26

$69.31

$80.99

$75.30

45.31%

$60.24

$75.15

45.02%

$60.12

Ryder System

(NYSE:R)

$65.96

$37.40

$56.79

$78.54

$115.69

$72.11

9.32%

$57.68

$67.67

2.58%

$54.13

Reynolds American Inc.

(NYSE:RAI)

$48.82

$40.14

$33.62

$56.15

$46.97

$44.22

-9.42%

$35.38

$43.56

-10.78%

$34.84

Ritchie Brothers Auctioneers Inc.

(NYSE:RBA)

$28.57

$16.01

$26.79

$20.93

$22.56

$21.57

-24.49%

$17.26

$21.75

-23.89%

$17.40

Regal Beloit Corp.

(NYSE:RBC)

$67.43

$38.20

$62.37

$72.06

$81.37

$63.50

-5.83%

$50.80

$67.22

-0.32%

$53.77

Republic Bancorp KY

(NASDAQ:RBCAA)

$25.98

$28.32

$26.88

$33.31

$32.61

$30.28

16.55%

$24.22

$30.47

17.26%

$24.37

RGC Resources Inc.

(NASDAQ:RGCO)

$22.11

$3.23

$14.63

$26.27

-

$14.71

-33.47%

$11.77

$14.63

-33.83%

$11.70

Royal Gold Inc.

(NASDAQ:RGLD)

$53.27

$18.91

$67.05

$50.09

$21.06

$39.28

-26.27%

$31.42

$35.58

-33.22%

$28.46

Robert Half International Inc.

(NYSE:RHI)

$45.74

$57.56

$51.86

$60.85

$62.87

$58.29

27.43%

$46.63

$59.21

29.44%

$47.36

RenaissanceRe Holdings

(NYSE:RNR)

$116.60

$490.43

$341.54

$135.90

$111.92

$269.95

131.52%

$215.96

$238.72

104.73%

$190.98

Rollins Inc.

(NYSE:ROL)

$26.84

$11.82

$23.44

$33.44

$13.25

$20.49

-23.67%

$16.39

$18.35

-31.65%

$14.68

Roper Technologies Inc.

(NYSE:ROP)

$176.90

$113.97

$169.25

$196.10

$133.21

$153.13

-13.44%

$122.51

$151.23

-14.51%

$120.98

Ross Stores Inc.

(NASDAQ:ROST)

$56.98

$49.04

$52.94

$69.13

$52.72

$55.96

-1.79%

$44.77

$52.83

-7.28%

$42.26

Republic Services Inc.

(NYSE:RSG)

$45.94

$20.36

$40.20

$46.11

$31.53

$34.55

-24.79%

$27.64

$35.87

-21.93%

$28.69

Raytheon Company

(NYSE:RTN)

$125.15

$116.63

$111.29

$153.56

$114.57

$124.01

-0.91%

$99.21

$115.60

-7.63%

$92.48

Southside Bancshares

(NASDAQ:SBSI)

$26.75

-$14.60

$10.66

$19.00

$18.58

$8.41

-68.56%

$6.73

$14.62

-45.35%

$11.70

SCANA Corp.

(NYSE:SCG)

$69.25

$41.04

$53.04

$85.78

$51.33

$57.80

-16.54%

$46.24

$52.19

-24.64%

$41.75

Spectra Energy Partners LP

(NYSE:SEP)

$48.47

$43.67

$50.22

$64.61

$44.86

$50.84

4.89%

$40.67

$47.54

-1.92%

$38.03

Shire plc

(NASDAQ:SHPG)

$180.51

$142.46

$205.81

$182.10

$278.34

$202.18

12.00%

$161.74

$193.96

7.45%

$155.16

South Jersey Industries

(NYSE:SJI)

$27.61

$5.21

$29.32

$30.75

$21.69

$21.74

-21.25%

$17.39

$25.51

-7.62%

$20.40

Tanger Factory Outlet Centers

(NYSE:SKT)

$36.77

$17.03

$34.35

$44.35

$30.29

$31.51

-14.32%

$25.20

$32.32

-12.10%

$25.86

Silgan Holdings Inc.

(NASDAQ:SLGN)

$53.88

$36.63

$53.85

$52.36

$49.72

$48.14

-10.65%

$38.51

$51.04

-5.27%

$40.83

Smith & Nephew plc

(NYSE:SNN)

$34.41

$18.73

$35.97

$34.40

$32.00

$30.28

-12.02%

$24.22

$33.20

-3.52%

$26.56

Southern Company

(NYSE:SO)

$50.45

$13.32

$44.69

$60.97

$32.87

$37.96

-24.75%

$30.37

$38.78

-23.13%

$31.02

Span-America Medical Systems

(NASDAQ:SPAN)

$17.92

$14.14

$19.58

$25.61

$6.28

$16.40

-8.47%

$13.12

$16.86

-5.92%

$13.49

Sempra Energy

(NYSE:SRE)

$103.91

$37.16

$94.35

$114.33

$78.20

$81.01

-22.04%

$64.81

$86.28

-16.97%

$69.02

Steris Corp.

(NYSE:STE)

$71.54

-

-$16.40

$71.13

$62.39

$39.04

-45.43%

$31.23

$62.39

-12.79%

$49.91

StoneMor Partners LP

(NYSE:STON)

$24.65

-$11.27

$21.45

-$8.17

-$8.26

-$1.56

-106.34%

-$1.25

-$8.22

-133.33%

-$6.57

Southwest Gas Corp.

(NYSE:SWX)

$64.10

$27.23

$76.92

$70.74

$42.57

$54.37

-15.19%

$43.49

$56.66

-11.61%

$45.32

Sunoco Logistics Partners LP

(NYSE:SXL)

$26.20

$35.76

$16.52

-$12.30

$19.72

$14.93

-43.03%

$11.94

$18.12

-30.84%

$14.50

Sensient Technologies Corp.

(NYSE:SXT)

$65.39

$32.38

$63.13

$69.24

$49.87

$53.66

-17.95%

$42.92

$56.50

-13.60%

$45.20

Stryker Corp.

(NYSE:SYK)

$110.10

$69.29

$97.03

$110.75

$97.13

$93.55

-15.03%

$74.84

$97.08

-11.83%

$77.66

TC Pipelines LP

(NYSE:TCP)

$53.01

$37.39

$59.15

$18.98

$38.67

$38.55

-27.28%

$30.84

$38.03

-28.26%

$30.42

Thomasville Bancshares Inc.

(OTCPK:THVB)

$30.00

$32.89

$8.55

-

-

$20.72

-30.93%

$16.58

$20.72

-30.93%

$16.58

Tiffany & Company

(NYSE:TIF)

$71.18

$63.59

$65.86

$86.25

$65.02

$70.18

-1.40%

$56.14

$65.44

-8.06%

$52.35

TJX Companies Inc.

(NYSE:TJX)

$77.30

$65.61

$70.77

$94.95

$67.03

$74.59

-3.51%

$59.67

$68.90

-10.87%

$55.12

Transmontaigne Partners LP

(NYSE:TLP)

$37.77

$31.76

$42.99

$42.20

$21.58

$34.63

-8.31%

$27.71

$36.98

-2.09%

$29.58

Torchmark Corp.

(NYSE:TMK)

$55.56

$176.38

$176.95

$66.55

$67.82

$121.93

119.45%

$97.54

$122.10

119.76%

$97.68

Texas Pacific Land Trust

(NYSE:TPL)

$150.20

$39.92

$161.25

$168.58

-

$123.25

-17.94%

$98.60

$161.25

7.36%

$129.00

Thomson Reuters Corp.

(NYSE:TRI)

$40.67

$41.06

-$9.24

$40.58

$37.28

$27.42

-32.58%

$21.94

$38.93

-4.28%

$31.14

Travelers Companies

(NYSE:TRV)

$116.23

$372.83

$348.46

$148.86

$150.20

$255.09

119.47%

$204.07

$249.33

114.51%

$199.46

Texas Instruments

(NASDAQ:TXN)

$58.93

$52.07

$58.24

$77.55

$51.53

$59.85

1.56%

$47.88

$55.16

-6.41%

$44.12

Urstadt Biddle Properties

(NYSE:UBA)

$20.95

$10.44

$26.40

$24.40

$14.95

$19.05

-9.08%

$15.24

$19.68

-6.09%

$15.74

UMB Financial Corp.

(NASDAQ:UMBF)

$51.32

$46.31

$33.38

$55.68

$55.74

$47.78

-6.90%

$38.22

$51.00

-0.63%

$40.80

Utah Medical Products Inc.

(NASDAQ:UTMD)

$62.56

$6.22

$40.00

$76.27

$20.51

$35.75

-42.85%

$28.60

$30.26

-51.64%

$24.20

United Technologies

(NYSE:UTX)

$104.57

$141.01

$112.58

$226.37

$111.82

$147.95

41.48%

$118.36

$126.80

21.25%

$101.44

Vector Group Ltd.

(NYSE:VGR)

$21.50

$8.17

$20.41

$23.93

$13.17

$16.42

-23.63%

$13.14

$16.79

-21.91%

$13.43

Valmont Industries

(NYSE:VMI)

$121.46

$27.36

$133.72

$121.90

$110.43

$98.35

-19.02%

$78.68

$116.17

-4.36%

$92.93

VSE Corp.

(NASDAQ:VSEC)

$66.20

$19.01

$58.66

$59.34

$31.75

$42.19

-36.27%

$33.75

$45.21

-31.71%

$36.16

Verizon Communications

(NYSE:VZ)

$51.35

$40.84

$48.00

$68.11

$48.14

$51.27

-0.15%

$41.02

$48.07

-6.39%

$38.46

Westamerica Bancorp

(NASDAQ:WABC)

$50.48

$27.00

$41.23

$53.95

$25.82

$37.00

-26.70%

$29.60

$34.12

-32.42%

$27.29

Wisconsin Energy

(NYSE:WEC)

$58.79

$11.20

$42.48

$64.65

$39.85

$39.55

-32.74%

$31.64

$41.17

-29.98%

$32.93

Westwood Holdings Group Inc.

(NYSE:WHG)

$59.14

$37.54

$55.43

$78.28

$26.79

$49.51

-16.28%

$39.61

$46.49

-21.40%

$37.19

Westlake Chemical Corp.

(NYSE:WLK)

$46.94

$59.76

$55.41

$60.38

$49.01

$56.14

19.60%

$44.91

$57.59

22.68%

$46.07

Waste Management

(NYSE:WM)

$56.90

$13.84

$56.41

$53.30

$40.43

$41.00

-27.95%

$32.80

$46.87

-17.64%

$37.49

Williams Companies

(NYSE:WMB)

$17.55

-$29.83

$87.51

-$6.76

$7.01

$14.48

-17.48%

$11.59

$0.13

-99.29%

$0.10

W.P. Carey Inc.

(NYSE:WPC)

$62.37

$28.95

$61.40

$62.65

$19.57

$43.14

-30.83%

$34.51

$45.18

-27.57%

$36.14

Westar Energy

(NYSE:WR)

$50.60

$14.33

$33.96

$60.77

$31.22

$35.07

-30.69%

$28.06

$32.59

-35.59%

$26.07

W.R. Berkley Corp.

(NYSE:WRB)

$56.39

$170.76

$176.22

$60.90

$57.05

$116.23

106.12%

$92.99

$115.83

105.41%

$92.66

Williams-Sonoma Inc.

(NYSE:WSM)

$60.91

$63.78

$63.24

$76.79

$66.26

$67.52

10.85%

$54.01

$65.02

6.75%

$52.02

West Pharmaceutical Services

(NYSE:WST)

$71.30

$39.25

$56.04

$77.86

$54.30

$56.86

-20.25%

$45.49

$55.17

-22.62%

$44.14

Xcel Energy

(NYSE:XEL)

$40.83

$8.93

$32.64

$43.07

$28.39

$28.26

-30.79%

$22.61

$30.52

-25.26%

$24.41

Xilinx Inc.

(NASDAQ:XLNX)

$46.01

$50.86

$48.35

$56.45

$34.92

$47.65

3.55%

$38.12

$49.61

7.81%

$39.68

York Water Company

(NASDAQ:YORW)

$32.10

$8.44

$22.66

$37.81

$12.53

$20.36

-36.57%

$16.29

$17.60

-45.19%

$14.08

Yum! Brands Inc.

(NYSE:YUM)

$81.84

$56.75

$78.94

$86.72

$71.36

$73.44

-10.26%

$58.75

$75.15

-8.17%

$60.12

Click to enlarge

For anyone wanting to see the actual color coded scheme, I have now posted the spreadsheet in Google Sheets. You can access it here.

Here is a couple of findings from this analysis:

There are a total of 24 companies that have an average and median margin of safety above 0%. This brings a total of 66 companies for the entire dividend contenders list. Of the 24 companies, 7 companies have an average and median margin of safety above 25%. The breakdown by sector can be seen in the following chart. Stocks with a margin of safety above 25% are listed under the sector name.

Click to enlarge

The breakdown by sector for the entire dividend contenders list can be seen in the following chart.

Click to enlarge

There were 3 companies with insufficient data to complete all of the valuation methods (LYBC, MYBF, PDER) There were 9 companies with insufficient data to complete 1 or 2 of the valuation models (TPL, THVB, STE, RGCO, PSBQ, ODC, NWFL, NIDB, MDNB).

In this next section, I am going to discuss 3 companies that have a MOS of at least 25% and 2 bonus companies that have an honorable mention due to the limited number of stocks meeting the criteria that are not financials. I am also going to pick out companies that are not financials because many were covered in the dividend champions article.

POLARIS INDUSTRIES

PII Click to enlarge

Polaris Industries Inc. designs, engineers and manufactures off-road vehicles, which includes all terrain vehicles and side-by-side vehicles for recreational and utility use, snowmobiles, and motorcycles.

PII has an attractive average margin of safety or potential upside of 36.8% and a median margin of safety of 35.5%. The four valuation methods had a close consensus on the estimated fair value. The average fair value is $130.29 while the median fair value is $129.09.

PII has a current dividend yield of 2.30% with a payout ratio of 31.4%. PII last raised its dividend by 4.0% on January 28, 2016. This marked 21 years of consecutive annual dividend increases. This last dividend increase was well below the previous 1 (10.4%), 3 (12.7%), and 5 (21.5%) year growth rates.

PII has had a series of negative news affect the stock. "The company warned that a weak oil market and unseasonably warm first part of winter cut into demand for off-road vehicles and snowmobiles." PII lowered its outlook for full-year revenue growth to a range of 4%-5%, which is over half the prior estimate. Sales declined 13% due to weak retail sales in the North American oil and gas regions.

An analyst from Longbow also found that snowmobile demand was seen as weak however it did note that PII appears to be gaining market share against Harley-Davidson (NYSE:HOG) via the Indian brand in the cruiser and sportster segments. The company does have a large bull camp of investment firms such as Wedbush, Citigroup, RBC Capital and Wunderlich. The company did approve an increase in the common stock repurchase authorization by 7.5M shares.

The following chart shows some of the liquidity issues the company is facing. The company has been facing some pressure since 2013, which has already been described above. But for example, there are some important issues such as days inventory outstanding. This indicates that the company is holding inventory longer each year before selling their product. In addition, we see that the average age of inventory is increasing as well.

The cash conversion cycle increased considerably in 2015 and shows that the theoretical amount of time between a company spending cash and receiving cash per each sale. Inventory turnover has been declining for 4 years straight. This measures the speed at which inventory moves through the company. Generally, the higher the better. These indicators can have a significant impact on the company's top line since it will have to have steeper sales possibly over longer periods of time in order to clear old inventory before introducing the next year's model line.

PII liquidity Click to enlarge

QUALCOMM INC.

QCOM Click to enlarge

Qualcomm Inc. develops digital communication technology called CDMA (Code Division Multiple Access), and owns intellectual property applicable to products that implement any version of CDMA including patents, patent applications and trade secrets.

QCOM has an estimated average fair value of $75.30 suggesting a margin of safety of 45.3% and an estimated median fair value of $75.15 suggesting a margin of safety of 45.0%. The DCF and Graham valuations suggest a fair value estimate in the $80s (possible 56% upside) while the EBIT and Absolute P/E valuations suggest a fair value estimate around $69 (possible 33% upside).

QCOM has an attractive dividend yield of 4.15% and a payout ratio of 61.9%. QCOM recently announced a 10.0% dividend increase on April 8, 2016 marking 15 consecutive years of dividend increases. Although this increase appears generous, it is less than the 1 (15.5%), 3 (24.5%) and 5 (20.2%) year dividend growth rates.

QCOM is in a highly competitive and ever advancing industry. QCOM has held a dominant position in the semiconductor space for years but increasing competition and adoption of products from competitors like Intel (NASDAQ:INTC) could make its top position short lived. Intel for example reportedly won a portion of the iPhone 7 modem orders back in March.

QCOM was stung last year when Samsung (OTC:SSNLF) dropped QCOM's snapdragon processor from its Galaxy S smartphone lineup. Samsung and Apple (NASDAQ:AAPL) have built their own processors instead of relying on products from companies like QCOM. This is the threat that QCOM continues to face. QCOM was also dogged by a corruption probe by the SEC and a lawsuit in China because the company hired young relatives of key executives or political figures. QCOM has settled both issues this year.

The company also announced that it has inked a licensing deal with Lenovo (OTCPK:LNVGY) and will receive royalties from the company from sales of its 3G and 4G phones. The stock was trading just above $80.00 in the middle of 2014 but has dropped to a low of $43.00 this year. The stock has since rebounded but questions about the strength and growth of the Chinese economy have dampened the price of the stock since much of its business is tied to China. Also, the company is tied to the demand of its suppliers. In this case, QCOM has been affected by AAPL's light guidance that it issued in January. QCOM also guided lower for FQ2.

Click to enlarge

ROBERT HALF INTERNATIONAL INC.

RHI Click to enlarge

Robert Half International Inc. provides staffing and risk consulting services through various divisions. The Company operates in North America, South America, Europe, Asia and Australia.

RHI has the lowest upside potential of the stocks being covered here. The average potential upside is 27.4%, while the median upside potential is 29.4%. These are based on an estimated average margin of safety of $58.29 and an estimated median margin of safety of $59.21. Most of the valuations have an estimated fair value close to one another however, the EBIT valuation sees less upside potential than the others.

RHI also has the second lowest dividend yield, which currently stands at 1.70%. The payout ratio is currently at 29.7%, which suggests that the company has room to expand the dividend. The company did increase its dividend by 10.0% on February 12, 2016, which placed the forward yield at about 2.40%. This marked the 13th consecutive year that the company increased its dividends annually. This raise was in line with the 1 (11.1%), 3 (10.1%) and 5 (9.0%) year dividend growth rates.

RHI is reliant on a strong and growing economy. The stock price in particular is affected when weak jobs data is released. Staffing stocks like RHI perform better when the job participation rate improves as well. Also, the stock price is affected by the consumer confidence report as this directly affects how potential clients perceive the economy. A weaker outlook suggests fewer clients are likely to seek after the services of RHI, as they believe that there are no jobs available. There are lots of arguments suggesting that the US economy is either in great or poor shape but that is also affected at some time by the overall global economy. Obviously, a recession is bad for business!

This is clearly evident in the valuation ratios that I like to consider. In the case of RHI, the company was affected significantly during 2008 and 2009, however, it has been able to return to or exceed pre-financial crisis levels for most of the ratios listed below. Apart from 2013 and 2014, where only a few ratios decreased from the previous year, the company has shown a resiliency and an ability to generate profits.

RHI Valuation Click to enlarge

BONUS: UNITED TECHNOLOGIES

UTX fair value Click to enlarge

United Technologies Corp. provides high technology products and services to the building systems and aerospace industries. It operates in four segments, Otis; UTC Climate, Controls & Security; Pratt & Whitney; and UTC Aerospace Systems.

UTX has an estimated average fair value of $147.95 for an average margin of safety of 41.5% while the median estimated fair value is $126.80 for a median margin of safety of 21.3%. The average is overly inflated by the Absolute P/E estimated fair value of $226.37, which is over double the current price. If this valuation was removed, the average margin of safety would drop to 16.5% and the median margin of safety would decline to 7.7%. Obviously, the Absolute P/E is playing a major influence since the EBIT and Graham valuation see little upside potential from the current price.

UTX has a dividend yield of 2.66% with a payout ratio of 56.5%. The company last raised its dividend on April 27, 2015 by 8.4%. Dividend investors are no doubt looking for a dividend increase to be announced in the coming weeks. Based on the 1 (8.5%), 3 (8.0%) and 5 (8.5%) year dividend growth rates, dividend investors should not expect anything bigger than 8.5%. An increase in April 2016 would mark the 23rd consecutive year that the company has increased its dividend.

UTX is currently building engines for Lockheed Martin's (NYSE:LMT) F-35 fighter and even was recently awarded another contract for additional engine types for the F-35 fighter jet. UTX was also selected to provide engines for NOC's new long range strike bomber. UTX has had recurring flaws with its engines for the F-35 as well as issues that have delayed the delivery and use of Airbus's (OTCPK:EADSF) new A321neo single aisle plane.

The biggest news impacting UTX was Honeywell's (NYSE:HON) merger ambitions which eventually was dropped. UTX believed that "given the strong regulatory obstacles, negative customer reaction and the potential for a protracted review process would have destroyed shareholder value." An analyst at Wells Fargo sees UTX's management as focused on driving shareholder value. UTX recently sold its Sikorsky Aircraft unit to LMT and boosted its stock buyback plan to $12B.

BONUS 2: WESTLAKE CHEMICAL CORP.

WLK fair value Click to enlarge

Westlake Chemical Corp. is a manufacturer and marketer of basic chemicals, vinyls, polymers and fabricated products. The Company operates in two principal business segments, Olefins and Vinyls.

WLK's average margin of safety is a commendable 19.6% with an estimated average fair value of $56.14. The median margin of safety is even higher at 22.7% with an estimated median fair value of $57.59. Apart from the Graham Valuation, which sees the price of WLK nearly at fair value, the other three valuations see more upside potential.

WLK has the lowest dividend yield currently at 1.28%. The company's payout ratio is one of the lowest I have seen at 14.25% meaning that the company could expand its dividend handsomely in the future. The company last raised its dividend by 10.0% back on August 24, 2015. The company has now raised its dividend for 12 consecutive years. Although the company's payout ratio is very low, it still decided to act conservatively particularly when compared to the 1 (19.1%), 3 (38.4%) and 5 (41.8%) year dividend growth rates. This is not a particularly positive trend since it shows that in each period, the dividend growth rate is basically halved from what it previously was.

Perhaps the reason for the conservative dividend raise is WLK's attempt to acquire Axiall (NYSE:AXLL) for $3.1B including approximately $1.5B in debt. This represents a premium of 143% to AXLL's closing price at the time. However, AXLL is putting up a fight and believes the company is still being undervalued by WLK, which has already made two offers. An analyst at Cohen believes WLK will still have to offer more for AXLL.

One of the big catalysts for WLK is that the IRS is considering a rule change for petrochemical stocks that may make them eligible for tax-exempt status and make them eligible to qualify as MLPs. WLK received a favourable IRS ruling in 2012 that was pushed by speculation that the MLP structure could be utilized by chemical makers, but the IRS in May 2015 proposed new rules (now under review) that said these companies would not qualify for MLP status unless it was part of a larger refining operation.

The fall in oil prices has dragged WLK down with it. The company once traded at close to $100.00 in 2014 and then dropped more than 50% running into 2016. The fall in oil prices and the impact it has had on the company could explain why the dividend raises have been declining. 2014 and 2015 have not been pretty years for the company but all of the metrics are still noteworthy.

One of the important things to consider is that the company is still considered a free cash flow generating machine with a FCF/S ratio above 10%. The company is still generating $0.16 per dollar invested [ROIC] and $0.14 for every dollar of FCF invested [CROIC]. Despite the current headwind of low oil prices, the company is still in a better position, a more efficient company today than it was prior to the financial crisis and for part of the recovery since.

WLK Valuation Click to enlarge

CONCLUSION

This brings to an end the valuation of the dividend contenders. There were more dividend contenders that were found to have a margin of safety of 25% or more than the dividend champions. The dividend contenders that had this margin of safety were also more diverse than the champions, which were made up of mostly financial companies.

There are a number of companies to consider among the dividend contenders but many face very particular issues that need to be considered for the future of the company and its dividend. One of the important things to evaluate is whether the current management team is capable of navigating the company back to continued growth or whether they won't be able to adapt to the changing environment or trend in their industry and sector.

There are also a number of companies in this list that are at risk of falling from the dividend contenders list because it has been over a year since the last dividend increase. These companies include MLAB, MUR, NSC, NWFL, OKS, PDER, UTX and VMI.

Next, I will endeavour to review the dividend challengers.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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: None of the information contained in this article should be construed as a recommendation to buy, sell or short any equities.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.