Nine Undervalued Dividend Stocks With Safe Yields Above 3%

Summary

• I screened Arbor Investment's list of dividend stocks for stocks trading under their estimate of intrinsic value. I also checked Morningstar, Value Line and Dividend Radar for fair value estimates.
• I eliminated any stocks not rated VERY SAFE or SAFE by Simply Safe Dividends.
• I finished with a total of nine stocks with dividend yields above 3% that appear to be undervalued by most of the metrics i examined.

Ken Faulkenberry is the founder of Arbor Investment Planner, an investment advisory website that combines dividend growth investing with a value orientation. Most of Arbor Investment's advice is behind a premium pay wall, but the web-site does provide free lists of Dividend Kings, Champions, Achievers, etc. that I refer to frequently. Arbor's web-site also offers a free analysis of almost 50 of the most widely held dividend growth stocks. That analysis includes an estimate of intrinsic value for each of those stocks. Because Arbor has a value oriented philosophy, their estimates of intrinsic value tend to be conservative. I figured any stock trading below Arbor's estimate of intrinsic value might be undervalued, so I began by comparing closing prices on 9/17/21 to Arbor's estimate of intrinsic value. A total of 15 stocks passed the initial screen.

I only wanted higher yielding stocks with safe dividends, so I eliminated any stocks with dividend yields below 3% and those not rated VERY SAFE or SAFE by Simply Safe Dividends. I found nine stocks with dividend yields above 3% that met both the valuation and dividend safety criteria. (see table below)   

Stock	Ticker Symbol	SSD	Yield	5 Yr Ave Yield	M* Rating
Chevron	CVX	65	5.54%	37% above	4 star
Verizon	VZ	87	4.72%	in line (7% off)	3 star
Abbvie	ABBV	70	4.83%	in line (3% off)	3 star
Walgreens Boots	WBA	79	3.85%	34% above	3 star
Cardinal Health	CAH	74	3.73%	in line (6% off)	3 star
3M Corp.	MMM	75	3.26%	15% above	3 star
Leggett & Platt	LEG	70	3.64%	in line (6% off)	3 star
Gilead Sciences	GILD	70	3.97%	12% above	4 star
Amgen	AMGN	74	3.21%	14% above	3 star

I wanted to get a better idea of the quality of the stocks on the list, so the next step was to compute DVK Quality Snapshot Scores for all of the stocks. Stocks with DVK Quality Snapshot scores of 15 points or higher are considered investment grade, while those with scores of 14 or lower are considered speculative. Eight stocks qualified for an investment grade designation, with scores ranging from a high of 23 points (out of 25) for 3M Corp (MMM) and Amgen (AMGN) to a low of 15 for Walgreens Boots Alliance (WBA) With a score of 14 points, Leggett & Platt (LEG) was the only stock on the list considered to be speculative. The DVK Quality Snapshot calculations are shown in the table below.

STOCK	Value Line	Value Line	S&P Credit	Morningstar	Simply Safe Dividends	DVK
	Safety Grade	Financial Strength	Rating	Moat Rating	Safety Score	Score
Chevron	3	A	AA-	Narrow	Safe (65)
CVX	3	3	5	4	4	19
Verizon	1	A++	BBB+	Narrow	Very Safe (87)
VZ	5	5	3	4	5	22
Abbvie	3	A	BBB+	Narrow	Safe (70)
ABBV	3	3	3	4	4	17
Walgreens	3	A	BBB	None	Safe (79)
WBA	3	3	3	2	4	15
Cardinal Health	3	A	BBB	Narrow	Safe (74)
CAH	3	3	3	4	4	17
3M Corp.	1	A++	A+	Wide	Safe (75)
MMM	5	5	4	5	4	23
Leggett & Platt	3	B++	BBB-	Not Rated	Safe (70)
LEG	3	2	3	2	4	14
Gilead	1	A	BBB+	Wide	Safe (70)
GILD	5	3	3	5	4	20
Amgen	1	A++	A-	Wide	Safe (74)
AMGN	5	5	4	5	4	23

These nine stocks are considered undervalued in comparison to Arbor's estimate of intrinsic value as shown in the table below.

Stock	Stock	Arbor	Arbor %
	Price	FV Price	FV
CVX	96.76	124.00	0.78
VZ	54.28	68.00	0.80
ABBV	107.73	136.00	0.79
WBA	49.62	61.00	0.81
CAH	52.57	69.00	0.76
MMM	181.49	194.00	0.94
LEG	46.16	53.00	0.87
GILD	71.61	76.00	0.94
AMGN	213.75	229.00	0.93

However, I wanted to check other sources in addition to Arbor for fair value estimates. I consulted Morningstar for their star ratings and fair value estimates. Morningstar considers stocks rated 4 star to be undervalued, while 3 star stocks are "trading within a range we consider fairly valued." In addition to Morningstar, i also looked at valuation estimates from Value Line and Dividend Radar. I used Value Line's 18 Month Target Price Midpoint and Dividend Radar's estimate of fair value to create a Price to Fair Value Ratio for each stock. The results are posted in the table below. As a final valuation check, I consulted Simply Safe Dividends for a comparison of current dividend yield to 5 year average dividend yield for each stock. A current dividend yield above the 5 year average yield is another indication that a stock might be undervalued.

Stock	Stock	Fair Value	Midpoint	Price to FV	Price to FV	Price to FV
	Price	Morningstar	Value Line	Morningstar	Value Line	Div Radar
CVX	96.76	115.00	119.00	0.84	0.81	1.00
VZ	54.28	57.00	60.00	0.95	0.90	0.85
ABBV	107.73	108.00	146.00	1.00	0.74	0.81
WBA	49.62	44.00	43.00	1.13	1.15	0.93
CAH	52.57	55.00	58.00	0.96	0.91	0.88
MMM	181.49	195.00	213.00	0.93	0.85	1.00
LEG	46.16	45.80	55.00	1.01	0.84	0.88
GILD	71.61	81.00	74.00	0.88	0.97	1.00
AMGN	219.38	200.00	276.00	1.10	0.79	1.00

I consider this screening process very successful. I was able to find several stocks with safe dividend yields above 3% (more than double the average of the S&P 500) and three stocks with safe dividend yields above 4.70%. All of these stocks appear to be reasonably priced. Chevron (CVX) Verizon (VZ) Abbvie (ABBV) and Cardinal Health (CAH) are all trading 20% or more below Arbor's estimate of intrinsic value. Gilead (GILD) and 3M Corp. (MMM) appear to be undervalued/fairly valued by every one of the metrics examined while Chevron (CVX) and Walgreens (WBA) offer current dividend yields more than 30% above their 5 year average yield.