6 S&P 500 Dividend Stocks Undervalued by the Graham Number

6 S&P 500 Dividend Stocks Undervalued by the Graham Number

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Do you prefer stocks that pay dividends you can rely on? We ran a screen with this idea in mind.

We began by screening the S&P 500 for dividend stocks: those paying dividend yields above 2% and sustainable payout ratios below 50%.

Then we screened that universe for those that appear undervalued relative to the Graham Number. The Graham Number is a measure of maximum fair value created by the "godfather of value investing," Benjamin Graham.

It is based off of a stock's EPS and book value per share (BVPS).

Graham Number = SQRT(22.5 x TTM EPS x MRQ BVPS)

The equation assumes that P/E should not be higher than 15 and P/BV should not be higher than 1.5. Stocks trading well below their Graham Number may be undervalued.

For an ‪interactive version of this chart, click on the image below.

Do you think these stocks pay sustainable dividend yields? Use this list as a starting point for your own analysis.

1. ConocoPhillips (COP, Earnings, Analysts, Financials): Operates as an integrated energy company worldwide. Market cap at $70.41B, most recent closing price at $58.0. Diluted TTM earnings per share at 8.14, and a MRQ book value per share value at 39.05, implies a Graham Number fair value = sqrt(22.5*8.14*39.05) = $84.57. Based on the stock's price at $61.06, this implies a potential upside of 38.5% from current levels. Dividend yield at 4.5%, and payout at 47%.
 

 

2. L-3 Communications Holdings Inc. (LLL, Earnings, Analysts, Financials): Provides command, control, communications, intelligence, surveillance, and reconnaissance systems; aircraft modernization and maintenance; and government services in the United States and internationally. Market cap at $7.14B, most recent closing price at $75.92. Diluted TTM earnings per share at 8.78, and a MRQ book value per share value at 60.82, implies a Graham Number fair value = sqrt(22.5*8.78*60.82) = $109.61. Based on the stock's price at $78.71, this implies a potential upside of 39.26% from current levels. Dividend yield at 2.6%, and payout ratio at 23%.
 

 

3. Northrop Grumman Corporation (NOC, Earnings, Analysts, Financials): Provides products, services, and solutions in aerospace, electronics, information systems, shipbuilding, and technical service sectors. Market cap at $15.96B, most recent closing price at $65.04. Diluted TTM earnings per share at 7.76, and a MRQ book value per share value at 44.56, implies a Graham Number fair value = sqrt(22.5*7.76*44.56) = $88.21. Based on the stock's price at $67.74, this implies a potential upside of 30.21% from current levels. Dividend yield at 3.4%, and payout ratio at 27%.
 

 

4. Safeway Inc. (SWY, Earnings, Analysts, Financials): Operates as a food and drug retailer in North America. Market cap at $4.61B, most recent closing price at $19.25. Diluted TTM earnings per share at 2.11, and a MRQ book value per share value at 11.6, implies a Graham Number fair value = sqrt(22.5*2.11*11.6) = $23.47. Based on the stock's price at $19.43, this implies a potential upside of 20.78% from current levels. Dividend yield at 3.6%, and payout ratio at 31%.
 

 

5. Molson Coors Brewing Company (TAP, Earnings, Analysts, Financials): Distributes beer brands. Market cap at $8.19B, most recent closing price at $45.18. Diluted TTM earnings per share at 3.07, and a MRQ book value per share value at 45.39, implies a Graham Number fair value = sqrt(22.5*3.07*45.39) = $55.99. Based on the stock's price at $45.12, this implies a potential upside of 24.1% from current levels. Dividend yield at 2.8%, and payout ratio at 36%.
 

 

6. The Washington Post Company (WPO, Earnings, Analysts, Financials): Operates as a diversified education and media company in the United States and internationally. Market cap at $2.85B, most recent closing price at $385.68. Diluted TTM earnings per share at 31.68, and a MRQ book value per share value at 358.19, implies a Graham Number fair value = sqrt(22.5*31.68*358.19) = $505.29. Based on the stock's price at $387.1, this implies a potential upside of 30.53% from current levels. Dividend yield at 2.5%, and payout ratio at 36%.
 

List compiled by Sabina Bhatia. BVPS and EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.

 

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