The Most Undervalued Dividend Champions, Contenders And Challengers

by: Juan de la Hoz

Dividend growth stocks are some of the most popular investments for investors here at SeekingAlpha.

Undervalued stocks are always great investment opportunities.

This article presents the most undervalued dividend growth stocks in the market today.

Results are based on six valuation metrics, historical and industry comparisons.

In this article, I'll be doing an in-depth quantitative value analysis of over 800 dividend growth stocks. Companies are ranked according to six distinct valuation metrics, the analysis focuses on historical and industry comparisons.

I'll start by explaining my methodology in more detail, and then list the most undervalued Dividend Champions, Contenders and Challengers. These stocks are likely to be strong value and buying opportunities, and almost certainly warrant a closer look. Many of these same stocks are relatively unknown and under-covered, so hopefully readers find them to be new and interesting investment opportunities.

Value Score Methodology

First, I had to decide on the investment universe: which companies I'm going to analyze. I decided to focus on dividend growth stocks, more specifically on Dividend Champions, Contenders and Challengers, which are companies with 25, 10, and 5 consecutive years of annual dividend growth, respectively. Stocks have to trade on U.S. exchanges, although companies don't have to be headquartered in the country. Justin Law maintains a very handy spreadsheet of these stocks here.

Second, I had to decide on which valuation metrics to use in my analysis. I settled on the following six key metrics:

  • Price to earnings
  • Price to book
  • Price to sales
  • Price to cash from operations
  • Price to free cash flow
  • Enterprise value to EBITDA

These are probably the most common valuation metrics, and are varied enough to ensure a well-rounded valuation analysis. I downloaded all relevant information from Bloomberg.

Third, I had to decide on how to analyze or compare these valuation metrics. I decided to compare each company's current value for each of these metrics with their one-year historical average and their industry average. So, for example, I would be comparing a company's PE ratio with their average PE ratio for the past year, and with the average PE ratio of its peers. The specific formulas used, for each of the valuation metrics, are as follows:

(Average historical value - current value) / (average historical value)

(Average industry value - current value) / (average industry value)

As an example, if a company's PE averaged 10x for the previous year but it currently stands at 9x, that company would appear undervalued in that particular metric by 10%.

Finally, I arrive at a composite value score by averaging the results for each individual metric. Intuitively, the composite value score tells you by how much is a company undervalued/overvalued relative to its historical/industry average in all of its valuation metrics. As an example, here is how the valuation score is calculated for Nucor (NUE), the most undervalued dividend champion:

(Source: Chart by Author - Bloomberg)

NUE's value score of 50% means it is undervalued relative to its peers and its historical average by, well, 50%.

I believe that my valuation analysis is relatively straightforward, but also quite powerful and well-rounded. Six valuation metrics plus two comparisons make for a very strong value score.

Value Score Results

By my calculations, the following are the ten most undervalued Dividend Champions, Contenders and Challengers:

Dividend Champions - 25 Years of Dividend Growth:

(Source: Chart by author - Bloomberg)

Dividend Contenders - 10 Years of Dividend Growth:

(Source: Chart by author - Bloomberg)

Dividend Challengers - 5 Years of Dividend Growth:

(Source: Chart by author - Bloomberg)

Lots of smaller, less well-known stocks here. Personally, it is the first time I hear about most of these companies, I imagine it is the same for many readers.


I believe that the undervalued dividend growth stocks presented in these lists very likely make for strong, opportune and interesting investment opportunities. These stocks are very likely trading below fair value, and will outperform the market if this is indeed the case. Prospective investors should, nevertheless, take a closer look at a company before investing, as there are other factors besides valuation to consider.

As a final note, if readers are interested in the complete spreadsheet let me know and I'll upload to dropbox or send it some other way.

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