Best Dividend Paying Stocks For Dividend Growth Investors - April 2018

by: Benjamin Clark
Summary

These companies are all rated as suitable for the Defensive Investor and/or the Enterprising Investor following the ModernGraham approach.

All are found to be either significantly undervalued or fairly valued according to the ModernGraham valuation model.

The companies have all grown their dividends for at least twenty straight years.

Dividend growth investing is a very popular approach which can fit within the ModernGraham methods. This article will look at companies reviewed by ModernGraham which have grown their dividends annually for at least the last 20 years. Out of over 900 companies covered by ModernGraham, only 70 have grown dividends annually for at least the last 20 years.

Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk.

The Elite

The following companies have been rated as undervalued and suitable for either the Defensive Investor or the Enterprising Investor:

Cardinal Health Inc (NYSE:CAH)

Cardinal Health Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.48 in 2014 to an estimated $4.43 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.14% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Cardinal Health Inc revealed the company was trading above its Graham Number of $50.88. The company pays a dividend of $1.81 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share - ModernGraham) was 14.78, which was below the industry average of 43.8, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-32.02.

Source: Compiled by author from SEC Filings and price data

AFLAC Incorporated (NYSE:AFL)

AFLAC Incorporated qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company's strong financial position. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $6.07 in 2014 to an estimated $8.08 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.21% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into AFLAC Incorporated revealed the company was trading below its Graham Number of $103.31. The company pays a dividend of $1.74 per share, for a yield of 2% Its PEmg (price over earnings per share - ModernGraham) was 10.92, which was below the industry average of 22.76, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Note - the figures listed for AFL are from before the recent 2 for 1 stock split.

Source: Compiled by author from SEC Filings and price data

Cincinnati Financial Corporation (NASDAQ:CINF)

Cincinnati Financial Corporation qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company's strong financial position. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.69 in 2014 to an estimated $4.11 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 4.82% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Cincinnati Financial Corporation revealed the company was trading above its Graham Number of $58.26. The company pays a dividend of $2 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share - ModernGraham) was 18.15, which was below the industry average of 20.16, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Source: Compiled by author from SEC Filings and price data

The Good

The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor:

Cintas Corporation (NASDAQ:CTAS)

Cintas Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.46 in 2014 to an estimated $5.53 for 2018. This level of demonstrated earnings growth supports the market's implied estimate of 11.17% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Cintas Corporation revealed the company was trading above its Graham Number of $59.9. The company pays a dividend of $1.33 per share, for a yield of 0.8% Its PEmg (price over earnings per share - ModernGraham) was 30.84, which was below the industry average of 32.93, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-18.65.

Source: Compiled by author from SEC Filings and price data

Air Products & Chemicals, Inc. (NYSE:APD)

Air Products & Chemicals, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $4.94 in 2014 to an estimated $7.66 for 2018. This level of demonstrated earnings growth supports the market's implied estimate of 6.66% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Air Products & Chemicals, Inc. revealed the company was trading above its Graham Number of $85.6. The company pays a dividend of $3.71 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share - ModernGraham) was 21.81, which was below the industry average of 31.55, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.97.

Source: Compiled by author from SEC Filings and price data

People's United Financial, Inc. (NASDAQ:PBCT)

People's United Financial, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company's strong financial position. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.71 in 2014 to an estimated $1.02 for 2018. This level of demonstrated earnings growth supports the market's implied estimate of 5.13% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into People's United Financial, Inc. revealed the company was trading below its Graham Number of $21.22. The company pays a dividend of $0.69 per share, for a yield of 3.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share - ModernGraham) was 18.76, which was below the industry average of 20.84, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Source: Compiled by author from SEC Filings and price data

Ross Stores, Inc. (NASDAQ:ROST)

Ross Stores, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.62 in 2014 to an estimated $2.77 for 2018. This level of demonstrated earnings growth supports the market's implied estimate of 9.86% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Ross Stores, Inc. revealed the company was trading above its Graham Number of $22.68. The company pays a dividend of $0.54 per share, for a yield of 0.7% Its PEmg (price over earnings per share - ModernGraham) was 28.22, which was below the industry average of 48.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.86.

Source: Compiled by author from SEC Filings and price data

Expeditors International of Washington (NASDAQ:EXPD)

Expeditors International of Washington is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.75 in 2014 to an estimated $2.55 for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 8.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Expeditors International of Washington revealed the company was trading above its Graham Number of $26.39. The company pays a dividend of $0.84 per share, for a yield of 1.3% Its PEmg (price over earnings per share - ModernGraham) was 25.12, which was below the industry average of 36.6, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $7.83.

Source: Compiled by author from SEC Filings and price data

Disclosure: I am/we are long PBCT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: See a list of my current holdings on ModernGraham.com. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer on ModernGraham.com.