Undervalued Dividend Growth Watch List May 2018

///Undervalued Dividend Growth Watch List May 2018

Undervalued Dividend Growth Watch List May 2018

Stacks of ChangeAs I highlighted in my last post, I have taken a new approach to finding undervalued dividend stocks for the next few months.  I am going to rely on the Aquirer’s Multiple technique to find undervalued US listed stocks and then I am going to cross reference those companies with those companies that have increased their dividend for over 20 years to come up with the watch list for this month (and the months going forward).

What is the Aquirer’s Multiple?

The Aquirer’s Multiple is a valuation method that attempts to find attractively priced companies that may be considered for take over.  The specific formula is:

Enterprise Value / Operating Earnings

I used Screener.Co to create a screen for stocks that:

  • Are listed in the US
  • Have an Enterprise Value / EBIT of less than 10
  • Have paid at least .01 in dividends in the trailing 12 months

After completing the project I noticed that I used EBIT vs Operating Earnings.  This would actually be the equation for the Magic Formula.  The magic formula is another value based idea, so I am not going to worry about it too much this month, but will fix the screen going forward.

This left me with about 500 stocks.  The next thing I did was loaded up the dividend champion list (25+ years of increasing dividends) and part of the dividend contender’s list (20 – 24 years of dividend growth).  Those combined lists provide with about 160 companies.  So now to cross reference them.

I was shocked to find out that when I cross referenced the two lists I was left with only 10 companies!

  • AFL
  • TYCB
  • EFSI
  • NC
  • ORI
  • OZRK
  • RBCAA
  • BEN
  • MCY
  • UVV

The next step was to remove all those companies that have a payout ratio higher than 60%.  This eliminated BEN (72%), MCY (183%) and UVV (192%).

May 2018 Dividend Growth Watch List

I will purchase a lot of one of the following companies:

  • AFL
  • TYCB
  • EFSI
  • NC
  • ORI
  • OZRK
  • RBCAA

I’d love to hear some thoughts about the companies or process.

By |2018-06-05T16:39:03+00:00May 18th, 2018|Dividend Investment Portfolio|3 Comments

About the Author:

Evan is the owner of My Journey to Millions which was started to track his journey from a broke debt ridden law school graduate to building a positive balance. Need more Evan? Follow him on Twitter, Contact him or get new posts directly to your email

3 Comments

  1. Charlie May 28, 2018 at 2:36 pm - Reply

    The only one I own is OZRK (soon to be OZK). They increase the dividend quarterly. Some analysts think they’re overly aggressive on commercial loans.

    Your process may require a little tuning to exclude gyrations associated with the tax law. BEN swung to a 1Q loss only due to the repatriation expense (1 time charge). They saw a roughly 4% increase in operating income.

    • Evan May 29, 2018 at 9:15 am - Reply

      “Your process may require a little tuning to exclude gyrations associated with the tax law. BEN swung to a 1Q loss only due to the repatriation expense (1 time charge). They saw a roughly 4% increase in operating income.”

      That is an excellent point, however, wouldn’t a month over month screen solve for that? Meaning that when that information is flushed out in a few months won’t that correct itself?

      • Charlie May 29, 2018 at 10:20 am - Reply

        Perhaps, but using monthly (or quarterly) numbers introduces other potential anomalies such as seasonality. Or companies like BX (or some foreign issues) that pay a percentage of profits. Then you have to factor in companies (like DIS) that are semi-annual to keep the comparison apples to apples.

        In BEN’s case (per MORN data), the payout ratio was no more than 26.58% from 2020 until 1Q 2018. The 5 year average is 22.29%.

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