The Most Undervalued And Overvalued Dividend Champions - November 2018

|
Includes: AFL, AOS, BANF, BEN, BMI, BRO, CAT, CL, CPKF, CSL, EV, HRL, ITW, KMB, LANC, LEG, MCY, MKC, MO, MSA, NC, NFG, ORI, PNR, SEIC, SRCE, SWK, T, TDS, THFF, TROW, TYCB
by: The Part-time Investor

Summary

A stock with a yield higher than usual may be undervalued.

A stock with a yield lower than usual may be overvalued.

Here is the November 2018 list of the most undervalued and overvalued Dividend Champions based on a comparison to historical yield.

In June of 2015, I started a series of articles in which I highlight the stocks from the Dividend Champions list that have the highest and the lowest Percent Above Average Yield (PAAY) over the past year and over the past five years. PAAY is a measure of how much a stock is above (high PAAY, undervalued?) or below (low PAAY, overvalued?) its usual yield, and can be an indication that the stock is mispriced. I had to abandon this series of articles in June of 2017 because the program I used to update prices and keep track of the stocks no longer worked. It wasn’t until this past month that I was able to find a replacement program, but that means that I can now continue with the series. Please see my previous article for the June 2017 list to refresh your memory of what the lists looked like before I had to suspend them. In this article, I present the newest list for November to get the series up and running again.

Please note that the Dividend Champions list is the list of stock which have raised their dividend for the past 25 years or more. It was started by, and until recently, was maintained by David Fish. David past away a few months ago but fortunately the management of the list has been taken over by Justin Law, who is doing a wonderful job. I trust him to maintain the list, and I assume that the information he presents is accurate. Any changes to the list are made by him. All historical price and dividend data used to calculate the PAAY were taken from Yahoo Finance. I attempted to correct any errors that I found or that were pointed out to me by others, but if the info from Yahoo is incorrect it could affect the data presented here.

Before I start, as I do in each of these articles, let me give a quick review of the thought process behind PAAY for those who are not familiar with it. Many stocks can trade within a fairly consistent range of yields over time. But if you find a stock that is trading at a higher yield than it usually does, it may be an indication that it is undervalued. There can be two reasons for an above-average yield: the price is down or the dividend has increased. Or, of course, it could be a combination of the two. If the price is down, and yet the business prospects are unchanged, then this could be a good buying opportunity. If the dividend has increased, and the stock price has not yet risen to keep up with the increased dividend, this again gives you an opportunity to buy more shares and increase your dividend income at a relatively low price. Therefore, tracking the dividend yield and comparing it to the historical average of that stock can highlight times when it may be undervalued. I call this Percent Above Average Yield. Take the present yield, subtract the historical average yield, and divide the result by the historical average yield (and multiply by 100 to turn it into a percent) to come up with the PAAY. The higher the PAAY, the more undervalued the stock may be. The lower the PAAY, the more overvalued it may be.

When I make my decisions about reinvesting my dividends, I use the one-year PAAY to determine which of my stocks are most undervalued. The stocks in question are ones I already own, and I am therefore looking for opportunities where one or more of my stocks is down for a short period of time but may be expected to rebound. I'm looking to take advantage of short-term opportunities to add more shares. But others may be looking for longer-term trends. They may think that a longer-term yield average is more significant in terms of looking for investment opportunities and would therefore want to use a five-year average. On the other hand, they may be thinking that some stocks may be overvalued and should be sold. In this case, the PAAY would be low. So in this article, I present the top 10 PAAY stocks and the bottom 10 PAAY stocks from the Dividend Champions list for both the one-year and five-year periods. Stocks with high PAAYs may be candidates to be bought. Stocks with low PAAYs possibly should be avoided, or if already owned, might be candidates to be sold. Please note, nothing I present here should be considered a recommendation to buy or sell any stock. This is just meant to be a possible starting place for further research. Everybody should do their own due diligence when making transaction decisions. Just because a stock is on this list does not mean it definitely should be bought or sold.

So without further ado, here is the list of Dividend Champions as of November 2nd, with the highest and lowest one-year and five-year PAAY.

Nov’s Lists

1 year High PAAY

(Short Term Undervalued?)

Stock

Closing Price

Latest Dividend

Yield

1 yr Average Yield

1 yr PAAY

Calvin B. Taylor Bankshares (OTCQX:TYCB)

36.50

0.99

10.85%

6.13%

76.89%

A. O. Smith Corporation (AOS)

48.09

0.22

1.83%

1.15%

59.70%

Illinois Tool Works Inc. (ITW)

130.71

1.0

3.06%

2.15%

42.50%

BancFirst Corporation (BANF)

57.57

0.3

2.08%

1.52%

36.79%

Eaton Vance Corp. (EV)

45.44

0.35

3.08%

2.31%

33.36%

Caterpillar Inc. (CAT)

125.79

0.86

2.73%

2.20%

24.20%

Stanley Black & Decker (SWK)

124.24

0.66

2.12%

1.71%

24.07%

SEI Investments Co. (SEIC)

54.29

0.3

2.21%

1.80%

22.75%

1st Source Corporation (SRCE)

47.04

0.25

2.13%

1.74%

22.46%

T. Rowe Price Group (TROW)

96.93

0.7

2.89%

2.37%

22.07%

1 year low PAAY

(Short Term Overvalued?)

Stock

Closing price

Latest Dividend

Yield

1 yr Average Yield

1 yr PAAY

Brown-Forman Corporation (BF-B)

47.25

0.158

1.34%

2.39%

-44.00%

Old Republic International Corporation (ORI)

21.72

0.195

3.59%

5.92%

-39.35%

Pentair plc (PNR)

41.63

0.175

1.68%

2.62%

-35.73%

Brown & Brown (BRO)

28.18

0.08

1.14%

1.68%

-32.46%

Aflac Incorporated (AFL)

42.90

0.26

2.42%

3.42%

-29.06%

McCormick & Company (MKC)

143.46

0.52

1.45%

1.85%

-21.50%

First Financial Corporation (THFF)

46.40

0.51

4.40%

5.50%

-20.13%

Lancaster Colony Corporation (LANC)

167.24

0.6

1.44%

1.78%

-19.33%

Telephone and Data Systems (TDS)

34.33

0.16

1.86%

2.28%

-18.34%

Mercury General Corporation (MCY)

60.04

0.625

4.16%

5.08%

-17.98%

5 year High PAAY

(Long Term Undervalued?)

Stock

Closing price

Latest Dividend

Yield

5 yr Average Yield

5 yr PAAY

Franklin Resources (BEN)

30.70

0.23

3.00%

1.69%

77.25%

Illinois Tool Works Inc. (ITW)

130.71

1.0

3.06%

2.09%

46.46%

Leggett & Platt (LEG)

37.96

0.38

4.00%

3.08%

29.84%

Carlisle Companies Incorporated (CSL)

99.24

0.4

1.61%

1.25%

28.93%

Colgate-Palmolive Company (CL)

60.29

0.42

2.79%

2.24%

24.41%

AT&T Inc. (T)

30.52

0.5

6.55%

5.34%

22.74%

Altria Group (MO)

63.67

0.8

5.03%

4.13%

21.65%

Eaton Vance Corp. (EV)

45.44

0.35

3.08%

2.55%

20.97%

National Fuel Gas Company (NFG)

51.18

0.425

3.32%

2.76%

20.45%

Kimberly-Clark Corporation (KMB)

105.48

1.0

3.79%

3.17%

19.73%

5 Year Low PAAY

(Short Term Overvalued?)

Stock

Closing price

Latest Dividend

Yield

5 yr Average Yield

5 yr PAAY

Chesapeake Financial Shares (OTCQB:CPKF)

30.65

0.14

1.83%

2.59%

-29.43%

Hormel Foods Corporation (HRL)

43.20

0.188

1.74%

2.53%

-31.32%

MSA Safety Incorporated (MSA)

106.48

0.38

1.43%

2.22%

-35.62%

BancFirst Corporation (BANF)

57.57

0.3

2.08%

3.59%

-41.96%

Badger Meter (BMI)

50.49

0.15

1.19%

2.05%

-42.01%

Pentair plc (PNR)

41.63

0.175

1.68%

2.93%

-42.70%

Aflac Incorporated (AFL)

42.90

0.26

2.42%

4.55%

-46.75%

Brown-Forman Corporation (BF-B)

47.25

0.158

1.34%

2.81%

-52.33%

Brown & Brown (BRO)

28.18

0.08

1.14%

2.46%

-53.83%

NACCO Industries (NC)

36.00

0.165

1.83%

6.58%

-72.14%

Conclusion

I believe that a stock's present yield, when compared to its historical yield (either one-year or five-year), can be an indicator of either undervaluation or overvaluation, and is a good starting point for further research into possible purchases or sales. But I stress again that this is only a starting point. More research into any of these stocks is necessary to make any final decisions. The yield for any particular stock may be up because the business prospects for that company are in decline, and the inevitable dividend cut has just not been announced yet. On the other hand, the yield may be up simply because the price is down due to global market forces unrelated to the business prospects of that particular company. Or the company may have just recently raised its dividend, and the stock price has not caught up yet to the increased payout. It is up to the individual investor to try to determine which of these is the case. But by using PAAY, you may find some opportunities that you otherwise would have been unaware of. And since these are all Dividend Champions, they have all shown a strong dividend culture and dividend payment history, which makes them worthy of further investigation.

Thank you for reading my article. I welcome your comments and criticisms.

Disclosure: I am/we are long ITW.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.