4 Dividend Champions Undervalued By The Graham Number

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 |  Includes: ADM, AFL, CB, CTBI
by: Kapitall

Do you prefer stocks that pay part of their return in dividend income? For a closer look at interesting dividend stocks, we ran a screen.

We began with a list of dividend champions from DRiP Investing. These stocks have consistently raised their dividend over the last 25 years. We then screened these names for those paying dividend yields above 2% and sustainable payout ratios below 50%.

Finally, we screened to find those that appear undervalued relative to the Graham Number, a measure of 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 solid value? Use this list as a starting point for your own analysis.

List sorted by potential upside implied by the Graham Number.

1. The Chubb Corporation (NYSE:CB): Provides property and casualty insurance to businesses and individuals. Market cap at $19.11B. Price at $71.84. Dividend yield at 2.32%, payout ratio at 26.24%. Diluted TTM earnings per share at 5.76, and a MRQ book value per share value at 57.16, implies a Graham Number fair value = sqrt(22.5*5.76*57.16) = $86.07. Based on the stock's price at $69.66, this implies a potential upside of 23.56% from current levels.

2. Community Trust Bancorp Inc. (NASDAQ:CTBI): Operates as the holding company for Community Trust Bank, Inc. Market cap at $493.85M. Price at $32.20. Dividend yield at 3.90%, payout ratio at 48.82%. Diluted TTM earnings per share at 2.53, and a MRQ book value per share value at 23.93, implies a Graham Number fair value = sqrt(22.5*2.53*23.93) = $36.91. Based on the stock's price at $30.26, this implies a potential upside of 21.97% from current levels.

3. AFLAC Inc. (NYSE:AFL): Provides supplemental health and life insurance. Market cap at $19.99B. Price at $42.37. Dividend yield at 3.08%, payout ratio at 29.26%. Diluted TTM earnings per share at 4.18, and a MRQ book value per share value at 28.96, implies a Graham Number fair value = sqrt(22.5*4.18*28.96) = $52.19. Based on the stock's price at $42.88, this implies a potential upside of 21.71% from current levels.

4. Archer Daniels Midland Company (NYSE:ADM): Procures, transports, stores, processes, and merchandises agricultural commodities and products in the United States and internationally. Market cap at $20.46B. Price at $30.79. Dividend yield at 2.26%, payout ratio at 28.49%. Diluted TTM earnings per share at 2.27, and a MRQ book value per share value at 27.16, implies a Graham Number fair value = sqrt(22.5*2.27*27.16) = $37.25. Based on the stock's price at $30.75, this implies a potential upside of 21.12% 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.