Wed. Jan. 13, 2010

5 Dividend Stocks Trading Below Fair Value *

This time last year it was not a problem to find a good dividend stock trading below its fair value. The question then was, ‘which of these do I buy?’ Unfortunately, now the questions is often, ‘am I willing to pay this much for that stock?’. If we look close enough, there are still a few dividend stocks trading below fair value.

Of the 139 dividend companies that I currently track, only 10 of them are trading below my calculated fair value. Of those 10, some are down because they are in declining industries and some have missed their last dividend increase. Removing those, here are the remaining five:

Raven Industries Inc. (RAVN) provides electronic precision-agriculture products, reinforced plastic sheeting, electronics manufacturing services, specialty aeronautics, and sewn products.
Fair Value: $31.75 | Recent Price: $31.54 | Yield: 1.74%

Becton, Dickinson and Co. (BDX) provides a wide range of medical devices and diagnostic products used in hospitals, doctors’ offices, research labs, and other settings.
Fair Value: $82.99 | Recent Price: $77.91 | Yield: 1.90% | [Analysis]

Harleysville Group Inc. (HGIC) is a regional holding company for property and casualty insurance companies that operates in 32 states, primarily in the eastern half of the U.S.
Fair Value: $34.88 | Recent Price: $31.49 | Yield: 3.97% | [Analysis]

McDonald’s Corporation (MCD) is the largest fast-food restaurant company in the world. Its restaurants serve a varied, yet limited, value-priced menu in more than 100 countries around the world.
Fair Value: $68.79 | Recent Price: $61.84 | Yield: 3.32% | [Analysis]

Cincinnati Financial Corp. (CINF) markets primarily property and casualty coverage; it also conducts life insurance and asset management operations.
Fair Value: $30.77 | Recent Price: $26.58 | Yield: 5.91% | [Analysis]

Needless to say, a winning investment strategy involves more that just looking at price. It is just one aspect we need to consider at before making a purchase. When a stock appears to be under-valued it could mean the market has lost confidence in it. If the market is wrong and we are not too fearful to buy, a handsome reward is likely to come our way.

Full Disclosure: Long MCD, HGIC. See a list of all my income holdings here.

(Photo: Steve Woods)

5 Responses to “5 Dividend Stocks Trading Below Fair Value *”

  1. Bill66 says:

    The end-of-the-investment-world-as-we-know-it is barely in our rearview mirror and already equities are so high that you can find only a scant handful selling at attractive prices.

    Now that’s entertainment. Errr, now that’s volatility.

    And it sure seems like a big, red caution flag to me.

  2. dj says:

    Question on your fair value number. Do you just take the sum of your four fair value metrics (Avg. High Yield Price; 20-Year DCF Price; Avg. P/E Price; and Graham Number) and divide by four? Or is there another way you calculate it? Sorry, I know this is probably in a spreadsheet or previous post somewhere.

  3. dj: It is a little more involved than that. take a look at page 2 of any of my analytical stock analysis (linked PDF). Aloso look at the Fair Value link on any of the stock analysis.

    Best Wishes,

  4. Bob J says:

    Of the 5 dividend stocks you list as traiding under fair value two of the yield under 2%. Another one, Raven Industries, has a fair value of 31.75 and a recent price of 31.54. I do not believe there is a signifigant difference between those numbers, especially if you figure in trading costs. So, instead of five possible “buys”, maybe there are really only two? That is, MCD and CINF.


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