There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected 10 of the best dividend-paying stocks for the Enterprising dividend stock investor. These companies have the highest dividend yields among the undervalued companies reviewed by ModernGraham which are suitable for the Enterprising Investor according to the ModernGraham approach.
Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.
The companies selected for this list may not pay what some consider to be huge dividends, but they have demonstrated strong financial positions through passing the requirements of the Enterprising Investor and show potential for capital growth based on their current prices in relation to intrinsic values. As such, these defensive dividend stocks may be great investments if they prove to be suitable for your portfolio after your own additional research.
Starwood Property Trust
Starwood Property Trust Inc. (STWD, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last 10 years and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.17 in 2012 to an estimated $1.98 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.4% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Starwood Property Trust revealed the company was trading below its Graham Number of $27.64. The company pays a dividend of $1.92 per share for a yield of 8.6%, putting it among the best dividend-paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.3, which was below the industry average of 34.03. By some methods of valuation that makes it one of the most undervalued stocks in its industry. (See the full valuation.)
Chesapeake Lodging Trust
Chesapeake Lodging Trust (CHSP, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability over the last 10 years, the poor dividend history and the high PEmg ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from 29 cents in 2012 to an estimated 98 cents for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 9.4% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Chesapeake Lodging Trust revealed the company was trading above its Graham Number of $22.35. The company pays a dividend of $1.6 per share, for a yield of 6%, putting it among the best dividend-paying stocks today. Its PEmg was 27.29, which was below the industry average of 31.91. By some methods of valuation that makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-12.24. (See the full valuation.)
Seagate Technology PLC
Seagate Technology PLC (STX, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last 10 years and the poor dividend history. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $2.39 in 2012 to an estimated $3.74 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.03% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price. (See the full valuation.)
Navient
Navient Corp. (NAVI, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last 10 years and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from 63 cents in 2012 to an estimated $2.39 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.25% annual earnings loss over the next seven to 10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Navient revealed the company was trading below its Graham Number of $21.98. The company pays a dividend of 64 cents per share for a yield of 4.5%, putting it among the best dividend-paying stocks today. Its PEmg was 6.01, which was below the industry average of 19.87. By some methods of valuation that makes it one of the most undervalued stocks in its industry. (See the full valuation.)
Canadian Imperial Bank of Commerce
Canadian Imperial Bank of Commerce (TSE:CM, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last 10 years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $7.07 in 2013 to an estimated $9.62 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.5% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Canadian Imperial Bank of Commerce revealed the company was trading below its Graham Number of $114.08. The company pays a dividend of $4.75 per share for a yield of 4.3%, putting it among the best dividend-paying stocks today. Its PEmg was 11.5, which was below the industry average of 21.43. By some methods of valuation that makes it one of the most undervalued stocks in its industry. (See the full valuation.)
Kimco Realty
Kimco Realty Corp. (KIM, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last 10 years and the high PEmg ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from 29 cents in 2012 to an estimated $1.24 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 7.79% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Kimco Realty revealed the company was trading above its Graham Number of $19.53. The company pays a dividend of $1.01 per share for a yield of 3.4%, putting it among the best dividend-paying stocks today. Its PEmg was 24.09, which was below the industry average of 34.03. By some methods of valuation that makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-13.21. (See the full valuation.)
L Brands
L Brands Inc. (LB, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio and high PEmg and price-book (P/B) ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be fairly valued after growing its EPSmg from $2.28 in 2013 to an estimated $3.57 for 2017. This level of demonstrated earnings growth supports the market's implied estimate of 6.08% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation.)
Janus Capital Group
Janus Capital Group Inc. (JNS, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last 10 years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from 32 cents in 2013 to an estimated 80 cents for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.35% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Janus Capital Group revealed the company was trading below its Graham Number of $13.5. The company pays a dividend of 42 cents per share for a yield of 3.4%, putting it among the best dividend-paying stocks today. Its PEmg was 15.2, which was below the industry average of 21.33. By some methods of valuation that makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-1.97. (See the full valuation.)
Valero Energy
Valero Energy Corp. (VLO, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio and insufficient earnings stability over the last 10 years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $1.71 in 2012 to an estimated $5.39 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.84% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Valero Energy revealed the company was trading above its Graham Number of $54.08. The company pays a dividend of $2.1 per share for a yield of 3.8%, putting it among the best dividend-paying stocks today. Its PEmg was 10.18, which was below the industry average of 55.24. By some methods of valuation that makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-18.5. (See the full valuation.)
Metlife
Metlife Inc. (MET, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last 10 years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $2.37 in 2012 to an estimated $4.04 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.75% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Metlife revealed the company was trading below its Graham Number of $78.35. The company pays a dividend of $1.55 per share for a yield of 2.7%, putting it among the best dividend-paying stocks today. Its PEmg was 14.01, which was below the industry average of 16.56. By some methods of valuation that makes it one of the most undervalued stocks in its industry. (See the full valuation.)
What do you think? Are these companies a good value for Enterprising Investors? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclosure:Â The author held a long position in Starwood Property Trust but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions. Please also read our full disclaimer. This article first appeared on ModernGraham.
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