# 4 Undervalued Stocks Raising Dividends With Falling Payout Ratios

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by: Kapitall

Are you interested in stocks paying reliable dividend income?

One of the most important ratios to consider for dividend stocks is the payout ratio, or dividend per share over earnings per share. This gives a reading of how sustainable a company's dividend payment is. When a company sees an increase in dividend payments with a decrease in payout ratio, it is a particularly good sign, because it shows an increase in return with no compromise to sustainability.

We screened for dividend stocks with these positive trends: increases in dividend per share with simultaneous decreases in payout ratio. We then screened for those that appear undervalued relative to the Graham Number.

The Graham Number was created by the "godfather of value investing," Benjamin Graham, as a calculation for a stock's maximum fair value. 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.

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 point for your own analysis.

1. Comerica Incorporated (NYSE:CMA): Provides various financial products and services in Texas, Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Dividend yield at 1.33%. Current year dividend per share estimate at \$0.50 vs. most recent fiscal year dividend at \$0.40. TTM payout ratio at 19.28% vs. 3-year average at 81.26%. Diluted TTM earnings per share at 2.09, and a MRQ book value per share value at 34.81, implies a Graham Number fair value = sqrt(22.5*2.09*34.81) = \$40.46. Based on the stock's price at \$30.18, this implies a potential upside of 34.06% from current levels.

2. Fulton Financial Corp. (NASDAQ:FULT): Operates as a multi-bank holding company that offers retail and commercial banking products and services in Pennsylvania, Delaware, Maryland, New Jersey and Virginia. Dividend yield at 2.09%. Current year dividend per share estimate at \$0.26 vs. most recent fiscal year dividend at \$0.12. TTM payout ratio at 24.06% vs. 3-year average at 76.15%. Diluted TTM earnings per share at 0.73, and a MRQ book value per share value at 9.96, implies a Graham Number fair value = sqrt(22.5*0.73*9.96) = \$12.79. Based on the stock's price at \$9.86, this implies a potential upside of 29.72% from current levels.

3. TCF Financial Corporation (TCB): Operates as the bank holding company for TCF National Bank that provides various retail and commercial banking products and services in the United States and Canada. Dividend yield at 1.90%. Current year dividend per share estimate at \$0.25 vs. most recent fiscal year dividend at \$0.20. TTM payout ratio at 28.20% vs. 3-year average at 43.72%. Diluted TTM earnings per share at 0.71, and a MRQ book value per share value at 11.82, implies a Graham Number fair value = sqrt(22.5*0.71*11.82) = \$13.74. Based on the stock's price at \$10.58, this implies a potential upside of 29.88% from current levels.

4. Wintrust Financial Corporation (NASDAQ:WTFC): Engages in community banking, specialty finance and wealth management operations. Dividend yield at 1.08%. Current year dividend per share estimate at \$0.19 vs. most recent fiscal year dividend at \$0.18. TTM payout ratio at 11.91% vs. 3-year average at 25.85%. Diluted TTM earnings per share at 1.67, and a MRQ book value per share value at 41.52, implies a Graham Number fair value = sqrt(22.5*1.67*41.52) = \$39.50. Based on the stock's price at \$34.11, this implies a potential upside of 15.8% from current levels.

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

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.