5 Highly Liquid Dividend Stocks Undervalued By The Graham Number

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Includes: CASC-OLD, FCX, FF, GES, MKSI
by: Kapitall

Do you prefer stocks that offer both value and the opportunity for growth? For a closer look at some interesting dividend stocks, we ran a screen.

We began by screening for stocks paying dividend yields above 2% and sustainable payout ratios below 50%. We then screened for stocks with strong liquidity, with current ratios above 3. The current ratio is current assets/current liabilities, so ratios above 3 indicate the company has at least 3 times the liquid assets to cover their short-term liabilities.

We then screened for those that also appear undervalued relative to the Graham Number. The Graham Number is 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.

Do you think these stocks pay attractive dividends? Use this list as a starting point for your own analysis.

List sorted by potential upside implied by the Graham Number.

1. Cascade Corp. (NYSE:CASC-OLD): Manufactures loading devices and replacement parts primarily for the lift-truck and construction industry. Market cap at $543.74M, most recent closing price at $50.19. Dividend yield at 2.86%, 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 $46.53, this implies a potential upside of 27.47% from current levels.

2. FutureFuel Corp. (NYSE:FF): Engages in the manufacture and sale of specialty chemicals and bio-based products primarily in the United States. Market cap at $412.37M, most recent closing price at $10.03. Dividend yield at 4.01%, payout ratio at 42.12%. Current ratio at 6.28. Diluted TTM earnings per share at 0.94, and a MRQ book value per share value at 7.08, implies a Graham Number fair value = sqrt(22.5*0.94*7.08) = $12.24. Based on the stock's price at $9.84, this implies a potential upside of 24.36% from current levels.

3. MKS Instruments Inc. (NASDAQ:MKSI): Provides instruments, subsystems, and process control solutions that measure, control, power, monitor, and analyze parameters of manufacturing processes worldwide. Market cap at $1.36B, most recent closing price at $26.45. Dividend yield at 2.32%, payout ratio at 27.51%. Current ratio at 10.11. Diluted TTM earnings per share at 2.15, and a MRQ book value per share value at 19.15, implies a Graham Number fair value = sqrt(22.5*2.15*19.15) = $30.44. Based on the stock's price at $24.57, this implies a potential upside of 23.88% from current levels.

4. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX): Engages in the exploration, mining, and production of mineral resources. Market cap at $30.76B, most recent closing price at $33.35. Dividend yield at 3.86%, payout ratio at 38.80%. Current ratio at 3.51. Diluted TTM earnings per share at 4.01, and a MRQ book value per share value at 17, implies a Graham Number fair value = sqrt(22.5*4.01*17) = $39.16. Based on the stock's price at $31.81, this implies a potential upside of 23.12% from current levels.

5. Guess' Inc. (NYSE:GES): Engages in the design, marketing, distribution, and licensing of apparel and accessories for men, women, and children. Market cap at $2.44B, most recent closing price at $27.05. Dividend yield at 2.95%, payout ratio at 29.50%. Current ratio at 3.19. Diluted TTM earnings per share at 2.86, and a MRQ book value per share value at 13.12, implies a Graham Number fair value = sqrt(22.5*2.86*13.12) = $29.06. Based on the stock's price at $24.51, this implies a potential upside of 18.55% 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.