6 S&P 500 Dividend Stocks Undervalued By The Graham Number

Tickers in this article: COP LLL NOC SWY TAP WPO

Looking for dividend stocks trading at attractive prices? Here are some ideas to get you started on your search.  [Related List:  4 Oil And Gas Stocks Undervalued To The Graham Number ]

To create the stock list below we began by screening the S&P 500 for dividend stocks: Those paying dividend yields above 2% and sustainable payout ratios below 50%.

EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a  14-day FREE pass.

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.  Tool provided by  Kapitall. Login to access free research tools, share practice portfolios, and more. 

Screen shot 2013-02-01 at 1.37.31 PM

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

1. ConocoPhillips ( COP): 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): 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): 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%.

Usage of this site is governed by TheStreet's Terms of Use available here. Information collected on this site may be collected by TheStreet and OC Register. TheStreet's use of information collected on this site will be governed by TheStreet's privacy policy available here. OC Register's use of information collected on this site will be governed by OC Register's privacy policy available here. If either TheStreet's or OC Register's privacy policy have provisions that are more restrictive than the provisions of the other party's privacy policy, such more restrictive provisions shall not apply to such other party.

Copyright © 2012 Orange County Register Communications. All Rights Reserved.
Site Help | Site Map