6 Low-Debt Dividend Stocks Undervalued By The Graham Number

|
 |  Includes: MLR, NRIM, PFS, SASR, TESS, THFF
by: Kapitall

Do you prefer stocks that offer both dividend income and the real possibility of capital gains? With that idea in mind, we ran a screen.

We began by screening for low-debt dividend stocks: those paying dividend yields above 2%, with sustainable payout ratios below 50%, and debt-to-equity ratios below 0.3.

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.

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

Tool provided by Kapitall. More investing ideas on Kapitall Wire.

Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.

List sorted by potential upside implied by the Graham Number.

1. Northrim Bancorp Inc. (NRIM): Provides a range of banking products and services to businesses, professionals, and individuals in Alaska. Market cap at $131.28M, most recent closing price at $20.29. Dividend yield at 2.56%, payout ratio at 29.27%. Total debt/equity at 0.29. Diluted TTM earnings per share at 1.75, and a MRQ book value per share value at 20.15, implies a Graham Number fair value = sqrt(22.5*1.75*20.15) = $28.17. Based on the stock's price at $20.25, this implies a potential upside of 39.1% from current levels.

2. First Financial Corp. (THFF): Provides various financial services. Market cap at $386.87M, most recent closing price at $29.22. Dividend yield at 3.22%, payout ratio at 34.56%. Total debt/equity at 0.18. Diluted TTM earnings per share at 2.72, and a MRQ book value per share value at 26.81, implies a Graham Number fair value = sqrt(22.5*2.72*26.81) = $40.51. Based on the stock's price at $29.14, this implies a potential upside of 39.01% from current levels.

3. Sandy Spring Bancorp Inc. (SASR): Operates as the holding company for Sandy Spring Bank, which offers a range of commercial banking, retail banking, and trust services to individuals and businesses in Maryland. Market cap at $429.39M, most recent closing price at $17.78. Dividend yield at 2.70%, payout ratio at 28.47%. Total debt/equity at 0.21. Diluted TTM earnings per share at 1.41, and a MRQ book value per share value at 18.94, implies a Graham Number fair value = sqrt(22.5*1.41*18.94) = $24.51. Based on the stock's price at $17.85, this implies a potential upside of 37.33% from current levels.

4. Provident Financial Services, Inc. (PFS): Operates as the holding company for The Provident Bank that provides banking services to individuals, families, and businesses in New Jersey. Market cap at $911.13M, most recent closing price at $15.14. Dividend yield at 3.43%, payout ratio at 43.74%. Total debt/equity at 0. Diluted TTM earnings per share at 1.1, and a MRQ book value per share value at 16.92, implies a Graham Number fair value = sqrt(22.5*1.1*16.92) = $20.46. Based on the stock's price at $15.01, this implies a potential upside of 36.33% from current levels.

5. Miller Industries Inc. (MLR): Engages in the manufacture and sale of vehicle towing and recovery equipment in North America and internationally. Market cap at $180.77M, most recent closing price at $16.33. Dividend yield at 3.18%, payout ratio at 31.54%. Total debt/equity at 0. Diluted TTM earnings per share at 1.5, and a MRQ book value per share value at 13.94, implies a Graham Number fair value = sqrt(22.5*1.5*13.94) = $21.69. Based on the stock's price at $16.53, this implies a potential upside of 31.22% from current levels.

6. TESSCO Technologies Inc. (TESS): Provides integrated product and supply chain solutions to support the construction, operation, and use of mobility and data wireless systems. Market cap at $143.32M, most recent closing price at $17.87. Dividend yield at 4.03%, payout ratio at 31.06%. Total debt/equity at 0.03. Diluted TTM earnings per share at 1.97, and a MRQ book value per share value at 12.24, implies a Graham Number fair value = sqrt(22.5*1.97*12.24) = $23.29. Based on the stock's price at $17.91, this implies a potential upside of 30.05% 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.