There are a number of great companies in the market today. I have selected the highest dividend yields among the undervalued or fairly valued companies for defensive dividend stock investors. Each company has been determined to be suitable for the Defensive Investor according to the ModernGraham approach.
Please note I have added fairly valued companies to this screen as the market's current valuation did not allow for the usual screen of only undervalued companies.
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 a huge dividend, but they have demonstrated strong financial positions through passing the rigorous requirements of the Defensive Investor and show potential for capital growth based on their current price in relation to intrinsic value. As such, these defensive dividend stocks may be a great investment if they prove to be suitable for your portfolio after your own additional research.
Shaw Communications Inc. (TSX:SJR.B, Financial)
Shaw Communications qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.42 in 2013 to an estimated $1.81 for 2017. This level of demonstrated earnings growth supports the market's implied estimate of 3.46% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Shaw Communications revealed the company was trading above its Graham Number of $19.31. The company pays a dividend of $1.18 per share for a yield of 4.2%, putting it among the best dividend-paying stocks today. Its PEmg (price over earnings per share) was 15.43, below the industry average of 68.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its net current asset value (NCAV) of $-16.78. (See the full valuation)
Gap qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has no initial concerns. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $1.87 in 2013 to an estimated $2.21 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.94% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Gap revealed the company was trading above its Graham Number of $15.43. The company pays a dividend of 92 cents per share for a yield of 4%, putting it among the best dividend-paying stocks today. Its PEmg was 10.37, below the industry average of 22.16, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-1.53. (See the full valuation)
Schweitzer-Mauduit International Inc. (SWM, Financial)
Schweitzer-Mauduit International qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the small size. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be fairly valued after growing its EPSmg from $2.33 in 2013 to an estimated $2.91 for 2017. This level of demonstrated earnings growth supports the market's implied estimate of 2.71% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Schweitzer-Mauduit International revealed the company was trading above its Graham Number of $34.35. The company pays a dividend of $1.62 per share for a yield of 4%, putting it among the best dividend-paying stocks today. Its PEmg was 13.92, below the industry average of 28.3, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-9.88. (See the full valuation)
People's United Financial Inc. (PBCT, Financial)
People's United Financial qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company's strong financial position. The Enterprising Investor has no initial concerns. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from 51 cents in 2012 to an estimated 83 cents for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 4.97% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
Qualcomm Inc. (QCOM, Financial)
Qualcomm qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be fairly valued after growing its EPSmg from $3.07 in 2013 to an estimated $3.91 for 2017. This level of demonstrated earnings growth supports the market's implied estimate of 2.52% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Qualcomm revealed the company was trading above its Graham Number of $44.13. The company pays a dividend of $2.07 per share for a yield of 3.9%, putting it among the best dividend-paying stocks today. Its PEmg was 13.54, below the industry average of 38.13, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-3.59. (See the full valuation)
Invesco qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $1.3 in 2012 to an estimated $2.15 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.37% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
SCANA qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be fairly valued after growing its EPSmg from $3.01 in 2012 to an estimated $4.09 for 2016. This level of demonstrated earnings growth supports the market's implied estimate of 4.71% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
Equity Residential (EQR, Financial)
Equity Residential qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $3.25 in 2013 to an estimated $4.49 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.74% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Equity Residential revealed the company was trading above its Graham Number of $24.78. The company pays a dividend of $2.02 per share for a yield of 3.2%, putting it among the best dividend-paying stocks today. Its PEmg was 13.99, below the industry average of 31.91, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-27.02. (See the full valuation)
T. Rowe Price Group Inc. (TROW, Financial)
T. Rowe Price Group qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high price-book (P/B) ratio. The Enterprising Investor has no initial concerns. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $2.75 in 2012 to an estimated $4.22 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.89% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into T. Rowe Price Group revealed the company was trading above its Graham Number of $41.69. The company pays a dividend of $2.12 per share for a yield of 3.1%, putting it among the best dividend-paying stocks today. Its PEmg was 16.27, below the industry average of 19.87, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of negative seven cents. (See the full valuation)
Eaton Corp. PLC (ETN, Financial)
Eaton qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be fairly valued after growing its EPSmg from $3.12 in 2012 to an estimated $4 for 2016. This level of demonstrated earnings growth supports the market's implied estimate of 3.69% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
What do you think? Are these companies a good value for 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 Invesco Ltd. (IVZ, Financial) and People's United Financial Inc. (PBCT, Financial), 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; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.
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