The Most Undervalued And Overvalued Dividend Champions - April 2019

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Includes: ALB, AOS, AWR, BANF, BEN, BKH, BMS, BRC, CBSH, CWT, DOV, EBTC, ERIE, EV, GD, ITW, MO, MSA, MSEX, NC, NNN, O, PG, SHW, SKT, SRCE, TR, TRI, UHT, UVV, WBA
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 April 2019 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. I now have a replacement program so I am continuing the series. In my previous article you can see the list of the most under and overvalued Dividend Champions from March. I have also released the list of under and over valued Dividend Contenders for April just a few days ago. Please take a look at those as well.

Please note that the Dividend Challengers 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 passed 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 and the Seeking Alpha historical dividend data. I attempted to correct any errors that I found or that were pointed out to me by others, including skewed results due to special dividends or stock splits, but if the info from Yahoo and Seeking Alpha 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 March 29th, with the highest and lowest one-year and five-year PAAY.

April’s Champions Lists

1 year High PAAY

(Short Term Undervalued?)

Stock

Close

Latest Dividend

Yield

1 yr Average Yield

1 yr PAAY

Walgreens Boots Alliance (WBA)

54.69

0.44

3.22%

2.47%

30.38%

John Wiley & Sons (JW-A)

45.01

0.33

2.93%

2.32%

26.42%

BancFirst Corporation (BANF)

54.26

0.3

2.21%

1.81%

22.51%

General Dynamics Corporation (GD)

171.12

1.020

2.38%

2.01%

18.54%

Enterprise Bancorp (EBTC)

31.10

0.160

2.06%

1.74%

18.27%

The Sherwin-Williams Company (SHW)

449.23

1.130

1.01%

0.87%

15.60%

1st Source Corporation (SRCE)

46.49

0.270

2.32%

2.01%

15.54%

Albemarle Corporation (ALB)

86.14

0.368

1.71%

1.48%

15.48%

Eaton Vance Corp. (EV)

42.52

0.35

3.29%

2.86%

15.05%

Commerce Bancshares (CBSH)

59.98

0.260

1.73%

1.54%

12.37%

1 year low PAAY

(Short Term Overvalued?)

Stock

Close

Latest Dividend

Yield

1 yr Average Yield

1 yr PAAY

Erie Indemnity Company (ERIE)

174.79

0.9

2.06%

2.60%

-20.89%

Thomson Reuters Corporation (TRI)

58.61

0.360

2.46%

3.04%

-19.23%

Tootsie Roll Industries (TR)

38.24

0.09

0.94%

1.14%

-17.66%

The Procter & Gamble Company (PG)

103.65

0.717

2.77%

3.36%

-17.56%

Realty Income Corporation (O)

72.28

0.226

3.75%

4.45%

-15.73%

Universal Health Realty Income Trust (UHT)

80.42

0.675

3.36%

3.97%

-15.34%

Dover Corporation (DOV)

96.54

0.48

1.99%

2.33%

-14.78%

Bemis Company (BMS)

55.29

0.320

2.32%

2.66%

-12.93%

National Retail Properties (NNN)

53.62

0.5

3.73%

4.28%

-12.77%

Black Hills Corporation (BKH)

73.84

0.505

2.74%

3.13%

-12.65%

5 year High PAAY

(Long Term Undervalued?)

Stock

Close

Latest Dividend

Yield

5 yr Average Yield

5 yr PAAY

Walgreens Boots Alliance (WBA)

54.69

0.44

3.22%

1.98%

62.76%

Tanger Factory Outlet Centers (SKT)

20.52

0.350

6.82%

4.27%

59.82%

Franklin Resources (BEN)

34.88

0.26

2.98%

1.88%

58.18%

Altria Group (MO)

54.77

0.8

5.84%

4.21%

38.89%

A. O. Smith Corporation (AOS)

55.17

0.22

1.60%

1.18%

35.33%

John Wiley & Sons (JW-A)

45.01

0.33

2.93%

2.23%

31.34%

Universal Corporation (UVV)

57.68

0.75

5.20%

4.06%

28.15%

General Dynamics Corporation (GD)

171.12

1.020

2.38%

1.90%

25.18%

Eaton Vance Corp. (EV)

42.52

0.35

3.29%

2.66%

23.82%

Illinois Tool Works Inc. (ITW)

152.20

1.0

2.63%

2.16%

21.62%

5 Year Low PAAY

(Long Term Overvalued?)

Stock

Close

Latest Dividend

Yield

5 yr Average Yield

5 yr PAAY

NACCO Industries (NC)

39.66

0.165

1.66%

6.11%

-72.76%

Middlesex Water Company (MSEX)

55.57

0.24

1.73%

2.61%

-33.93%

MSA Safety Incorporated (MSA)

106.72

0.38

1.42%

2.15%

-33.66%

California Water Service Group (CWT)

51.72

0.198

1.53%

2.28%

-33.01%

Brady Corporation (BRC)

47.41

0.213

1.80%

2.62%

-31.53%

Erie Indemnity Company (ERIE)

174.79

0.9

2.06%

2.90%

-29.01%

American States Water Company (AWR)

70.61

0.275

1.56%

2.12%

-26.40%

Universal Health Realty Income Trust (UHT)

80.42

0.675

3.36%

4.54%

-26.01%

Dover Corporation (DOV)

96.54

0.48

1.99%

2.68%

-25.91%

Thomson Reuters Corporation (TRI)

58.61

0.360

2.46%

3.27%

-24.94%

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 WBA. 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.