Liquidity is a very important consideration for dividend stocks. If a company’s profits take a temporary dip, the company can use its sources of liquidity such as cash and marketable securities to continue paying its dividend yield. Companies with greater liquidity are thought to pay more reliable dividends.
We ran a screen on dividend stocks with high liquidity, indicated by current ratios greater than 3. We screened these stocks for those that appear to be undervalued, trading at significant discounts to their Graham number.
The Graham Number is a measure of a stock’s maximum fair value, and it only requires two data points: current earnings per share and current book value per share. The Graham Number = Square Root of (22.5) x (TTM Earnings per Share) x (MRQ Book Value per Share). This equation assumes that a stock is overvalued if P/E is over 15 or P/BV is over 1.5.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.
Do you think these stocks pay reliable dividends? Use this list as a starting-off point for your own analysis.
List sorted by potential upside implied by the Graham number.
1. Steel Dynamics Inc. (NASDAQ:STLD): Engages in the manufacture and sale of steel products in the United States. Market cap of $2.76B. Dividend yield at 2.97%, payout ratio at 32.02%. Current ratio at 3.48. TTM Diluted EPS at $1.12, MRQ Book Value Per Share at $10.53, Graham number at $16.29 (vs. current price at $12.62, implies a potential upside of 29.08%). The stock has recently rebounded, and is currently trading 10.94% above its SMA20 and 13.81% above its SMA50. However, the stock still trades 15.39% below its SMA200. The stock has had a good month, gaining 24.46%.
2. 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 of $1.39B. Dividend yield at 2.27%, payout ratio at 16.69%. Current ratio at 10.25. TTM Diluted EPS at $2.73, MRQ Book Value Per Share at $18.54, Graham number at $33.75 (vs. current price at $26.49, implies a potential upside of 27.39%). The stock has had a good month, gaining 18.9%.
3. Communications Systems Inc. (NASDAQ:JCS): Manufactures and sells modular connecting and wiring devices, and media and rate conversion products. Market cap of $130.92M. Dividend yield at 3.86%, payout ratio at 40.17%. Current ratio at 5.73. TTM Diluted EPS at $1.48, MRQ Book Value Per Share at $11.39, Graham number at $19.48 (vs. current price at $15.53, implies a potential upside of 25.40%). The stock is a short squeeze candidate, with a short float at 5.23% (equivalent to 8.77 days of average volume). The stock has had a good month, gaining 13.03%.
4. Bristow Group, Inc. (NYSE:BRS): Provides helicopter services to the offshore energy industry primarily in Europe, West Africa, North America, Australia, and internationally. Market cap of $1.82B. Dividend yield at 1.21%, payout ratio at 4.08%. Current ratio at 3.63. TTM Diluted EPS at $3.59, MRQ Book Value Per Share at $41.88, Graham number at $58.16 (vs. current price at $49.69, implies a potential upside of 17.05%). The stock is a short squeeze candidate, with a short float at 6.63% (equivalent to 7.47 days of average volume). The stock has had a good month, gaining 18.28%.
*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.