4 Highly Liquid Dividend Stocks Undervalued By The Graham Number

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 |  Includes: CASC-OLD, COHU, JNS, MKSI
by: Kapitall

Do you prefer stocks that pay their fair share in dividend income? For ideas on how to start your own dividend search, we ran a screen.

We began by screening for dividend stocks paying dividend yields above 2% and sustainable payout ratios below 50%. We then screened these names for those that appear undervalued relative to the Graham Number, a measure of a stock's maximum fair value, created by the "godfather of value investing" Benjamin Graham.

It is based off of a stock's EPS and book value per share (BVPS).

Graham Number = SQRT(22.5 x TTM EPS x MRQ BVPS)

The equation assumes that P/E should not be higher than 15 and P/BV should not be higher than 1.5. Stocks trading well below their Graham Number may be undervalued.

Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

Do you think these stocks offer both value and growth? Use this list as a starting point for your own analysis.

List sorted by potential upside implied by the Graham Number.

1. Janus Capital Group, Inc. (JNS): A publicly owned asset management holding company. Market cap at $1.51B. Price at $8.00. Dividend yield at 2.49%, payout ratio at 19.59%. Current ratio at 5.62. Diluted TTM earnings per share at 0.78, and a MRQ book value per share value at 7.02, implies a Graham Number fair value = sqrt(22.5*0.78*7.02) = $11.10. Based on the stock's price at $8.02, this implies a potential upside of 38.4% from current levels.

2. Cascade Corp. (CASC-OLD): Manufactures loading devices and replacement parts primarily for the lift-truck and construction industry. Market cap at $514.80M. Price at $46.75. Dividend yield at 3.02%, payout ratio at 15.80%. Current ratio at 3.75. Diluted TTM earnings per share at 5.58, and a MRQ book value per share value at 28.02, implies a Graham Number fair value = sqrt(22.5*5.58*28.02) = $59.31. Based on the stock's price at $46.42, this implies a potential upside of 27.77% from current levels.

3. Cohu, Inc. (COHU): Engages in the development, manufacture, sale, and servicing of test handling and burn-in related equipment, and thermal sub-systems for the semiconductor industry worldwide. Market cap at $262.84M. Price at $10.83. Dividend yield at 2.22%, payout ratio at 36.89%. Current ratio at 4.70. Diluted TTM earnings per share at 0.64, and a MRQ book value per share value at 11.96, implies a Graham Number fair value = sqrt(22.5*0.64*11.96) = $13.12. Based on the stock's price at $10.79, this implies a potential upside of 21.63% from current levels.

4. 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 at $1.44B. Price at $27.38. Dividend yield at 2.19%, payout ratio at 24.24%. Current ratio at 9.18. Diluted TTM earnings per share at 2.45, and a MRQ book value per share value at 18.86, implies a Graham Number fair value = sqrt(22.5*2.45*18.86) = $32.24. Based on the stock's price at $27.43, this implies a potential upside of 17.55% from current levels.

*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.