10 Undervalued Companies for the Defensive Dividend Stock Investor

B&G Foods tops the list

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Benjamin Clark
Feb 06, 2019
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There are a number of great companies in the market today. I've selected the highest dividend yields among the undervalued companies for defensive dividend stock investors reviewed by ModernGraham. Each company has been determined to be suitable for the Defensive Investor according to the ModernGraham approach.

Defensive Investors are defined as investors who 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.

B&G Foods Inc. (

BGS, Financial)

B&G Foods 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 is only concerned with the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from 94 cents in 2014 to an estimated $2.09 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.92% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into B&G Foods revealed the company was trading above its Graham number of $24.23. The company pays a dividend of $1.86 per share, for a yield of 6.2%, putting it among the best dividend-paying stocks today. Its PEmg (price over earnings per share) was 14.34, below the industry average of 25.4, 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 of $-26.95.

B&G Foods performs fairly well in the ModernGraham grading system, scoring a B+.

AT&T Inc. (

T, Financial)

AT&T 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 $1.89 in 2014 to an estimated $3.06 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.53% 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 AT&T revealed the company was trading below its Graham number of $38.89. The company pays a dividend of $1.97 per share, for a yield of 6.7%, putting it among the best dividend-paying stocks today. Its PEmg was 9.56, below the industry average of 25.67, 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 $-40.55.

AT&T fares extremely well in the ModernGraham grading system, scoring an A.

Invesco Ltd. (

IVZ, Financial)

Invesco 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 $1.89 in 2014 to an estimated $2.39 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.65% annual earnings loss 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 Invesco revealed the company was trading below its Graham number of $33.89. The company pays a dividend of $1.15 per share, for a yield of 6.7%, putting it among the best dividend-paying stocks today. Its PEmg was 7.21, below the industry average of 18, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Invesco fares extremely well in the ModernGraham grading system, scoring an A.

Tanger Factory Outlet Centers Inc. (

SKT, Financial)

Tanger Factory Outlet Centers qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high price-book 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 undervalued after growing its EPSmg from 76 cents in 2014 to an estimated $1.25 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 5.18% 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 Tanger Factory Outlet revealed the company was trading above its Graham number of $11.47. The company pays a dividend of $1.35 per share, for a yield of 5.7%, putting it among the best dividend-paying stocks today. Its PEmg was 18.86, below the industry average of 49.54, 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 $-17.97.

Tanger Factory Outlet fares extremely well in the ModernGraham grading system, scoring an A.

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 71 cents in 2014 to an estimated $1.04 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.89% 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 People's United Financial revealed the company was trading below its Graham number of $21.65. The company pays a dividend of 69 cents per share, for a yield of 4.6%, putting it among the best dividend-paying stocks today. Its PEmg was 14.28, below the industry average of 14.65, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

People's United Financial fares extremely well in the ModernGraham grading system, scoring an A+.

H & R Block Inc. (

HRB, Financial)

H & R Block qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high price-book 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 undervalued after growing its EPSmg from $1.55 in 2015 to an estimated $2.05 for 2019. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.95% 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 H & R Block revealed the company was trading above its Graham number of $8.61. The company pays a dividend of 96 cents per share, for a yield of 3.8%, putting it among the best dividend-paying stocks today. Its PEmg was 12.39, below the industry average of 18, 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 $-6.68.

H & R Block performs fairly well in the ModernGraham grading system, scoring a B+.

International Paper Co. (

IP, Financial)

International Paper 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 undervalued after growing its EPSmg from $2.13 in 2014 to an estimated $3.71 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.9% 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 International Paper revealed the company was trading above its Graham Number of $40.25. The company pays a dividend of $1.86 per share, for a yield of 3.5%, putting it among the best dividend-paying stocks today. Its PEmg was 14.3, below the industry average of 22.87, 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 $-46.64.

International Paper Co performs fairly well in the ModernGraham grading system, scoring a B+.

Infosys Ltd. (

INFY, Financial)

Infosys qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high price-book 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 overvalued after growing its EPSmg from 79 cents in 2015 to an estimated 99 cents for 2019. This level of demonstrated earnings growth does not support the market's implied estimate of 5.56% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Infosys revealed the company was trading above its Graham number of $10.1. The company pays a dividend of 43 cents per share, for a yield of 2.2%, putting it among the best dividend-paying stocks today. Its PEmg was 19.63, below the industry average of 44.18, 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 $2.47.

Infosys performs fairly well in the ModernGraham grading system, scoring a B-.

Principal Financial Group Inc. (

PFG, Financial)

Principal Financial Group 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 $2.9 in 2014 to an estimated $5.72 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.29% annual earnings loss 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 Principal Financial Group revealed the company was trading below its Graham Number of $76.24. The company pays a dividend of $1.87 per share, for a yield of 4.1%, putting it among the best dividend-paying stocks today. Its PEmg was 7.92, below the industry average of 30.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Principal Financial Group fares extremely well in the ModernGraham grading system, scoring an A.

Pentair PLC (

PNR, Financial)

Pentair qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the insufficient earnings stability over the last 10 years. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets and the lack of earnings stability over the last five years. 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 $1.01 in 2014 to an estimated $2.31 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 5.31% 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 Pentair revealed the company was trading above its Graham number of $37.69. The company pays a dividend of $1.38 per share, for a yield of 3.1%, putting it among the best dividend-paying stocks today. Its PEmg was 19.12, below the industry average of 28.31, 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 $-10.63.

Pentair performs fairly well in the ModernGraham grading system, scoring a B+.

What do you think? Are these companies a good value for Defensive Investors? Is there a company you like better?

Disclosure: 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. This article first appeared on ModernGraham.

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Benjamin is one of TipRank's top bloggers. He is the founder of ModernGraham.com, a value investing website devoted to the study and modernization of the teachings of Benjamin Graham.