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Do you prefer stocks that pay dividends you can rely on? We ran a screen with this idea in mind.

We began by screening the S&P 500 for dividend stocks: those paying dividend yields above 2% and sustainable payout ratios below 50%.

Then we screened that universe for those that 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 (www.kapitall.com). More investing ideas on Kapitall Wire (wire.kapitall.com).

Do you think these stocks pay sustainable dividend yields? Use this list as a starting point for your own analysis.

List sorted by potential upside implied by the Graham Number.

1. Staples, Inc. (NASDAQ:SPLS): Operates as an office products company. Market cap at $9.19B, most recent closing price at $13.33. Dividend yield at 3.31%, payout ratio at 28.94%. Diluted TTM earnings per share at 1.39, and a MRQ book value per share value at 10.27, implies a Graham Number fair value = sqrt(22.5*1.39*10.27) = $17.92. Based on the stock's price at $12.93, this implies a potential upside of 38.61% from current levels.

2. Whirlpool Corp. (NYSE:WHR): Engages in the manufacture and marketing of home appliances worldwide. Market cap at $5.56B, most recent closing price at $71.67. Dividend yield at 2.81%, payout ratio at 26.41%. Diluted TTM earnings per share at 7.48, and a MRQ book value per share value at 54.71, implies a Graham Number fair value = sqrt(22.5*7.48*54.71) = $95.96. Based on the stock's price at $69.54, this implies a potential upside of 37.99% from current levels.

3. AFLAC Inc. (NYSE:AFL): Provides supplemental health and life insurance. Market cap at $21.41B, most recent closing price at $45.78. Dividend yield at 2.89%, payout ratio at 23.56%. Diluted TTM earnings per share at 5.48, and a MRQ book value per share value at 30.37, implies a Graham Number fair value = sqrt(22.5*5.48*30.37) = $61.19. Based on the stock's price at $44.58, this implies a potential upside of 37.27% from current levels.

4. Safeway Inc. (NYSE:SWY): Operates as a food and drug retailer in North America. Market cap at $3.85B, most recent closing price at $16.06. Dividend yield at 4.29%, payout ratio at 31.30%. Diluted TTM earnings per share at 1.83, and a MRQ book value per share value at 10.8, implies a Graham Number fair value = sqrt(22.5*1.83*10.8) = $21.09. Based on the stock's price at $15.45, this implies a potential upside of 36.49% from current levels.

5. Gannett Co., Inc. (NYSE:GCI): Operates as a media and marketing solutions company in the United States and internationally. Market cap at $3.46B, most recent closing price at $14.97. Dividend yield at 5.31%, payout ratio at 32.57%. Diluted TTM earnings per share at 1.69, and a MRQ book value per share value at 9.95, implies a Graham Number fair value = sqrt(22.5*1.69*9.95) = $19.45. Based on the stock's price at $14.46, this implies a potential upside of 34.52% from current levels.

6. Northrop Grumman Corporation (NYSE:NOC): Provides products, services, and solutions in aerospace, electronics, information systems, shipbuilding, and technical service sectors. Market cap at $16.77B, most recent closing price at $67.85. Dividend yield at 3.22%, payout ratio at 25.88%. Diluted TTM earnings per share at 7.78, and a MRQ book value per share value at 43.2, implies a Graham Number fair value = sqrt(22.5*7.78*43.2) = $86.96. Based on the stock's price at $66.37, this implies a potential upside of 31.02% from current levels.

7. Johnson Controls Inc. (NYSE:JCI): Engages in building efficiency, automotive experience, and power solutions businesses worldwide. Market cap at $17.46B, most recent closing price at $25.53. Dividend yield at 2.78%, payout ratio at 27.65%. Diluted TTM earnings per share at 2.51, and a MRQ book value per share value at 16.95, implies a Graham Number fair value = sqrt(22.5*2.51*16.95) = $30.94. Based on the stock's price at $24.59, this implies a potential upside of 25.82% from current levels.

8. General Dynamics Corp. (NYSE:GD): Provides business aviation, combat vehicles, weapons systems and munitions, military and commercial shipbuilding, and communications and information technology products and services worldwide. Market cap at $22.55B, most recent closing price at $63.93. Dividend yield at 3.22%, payout ratio at 28.33%. Diluted TTM earnings per share at 6.81, and a MRQ book value per share value at 38.73, implies a Graham Number fair value = sqrt(22.5*6.81*38.73) = $77.04. Based on the stock's price at $63.1, this implies a potential upside of 22.08% from current levels.

*BVPS and EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.

Source: 8 S&P 500 Dividend Stocks Undervalued By The Graham Number