Feature Screens

5 Highest Dividend Yields Among Undervalued Companies for the Defensive Investor – October 2014

5def-und-divThere are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the five highest dividend yields among the undervalued companies reviewed by ModernGraham. Each company has been determined to be suitable for Defensive Investor according to the ModernGraham approach. This is a sample of one screen that is included in ModernGraham Stocks & Screens, which is available for premium subscribers.  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.

Be sure to check out the history of this screen!

Mattel Inc. (MAT)

200px-Mattel-brand.svgWith a Dividend Yield of 4.87%, Mattel qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only initial concern is the high PB ratio, while the Enterprising Investor has no concerns.  Therefore, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Hasbro Inc. (HAS).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.53 in 2010 to an estimated $2.21 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.72% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (See the full valuation)
MAT Chart

MAT data by YCharts

Coach Inc. (COH)

Official_Coach_Inc_LogoCoach has a dividend yield of 3.72% and qualifies for either the Defensive Investor or the Enterprising Investor. The Defensive Investor’s only concern with the company is the short dividend history while the company passes all of the requirements of the Enterprising Investor. As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities such as through a review of ModernGraham’s valuation of Ralph Lauren (RL). As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.03 in 2010 to an estimated $3.20 for 2014. This level of demonstrated growth outpaces the market’s implied estimate of 1.22% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the price.  (See the full valuation)
COH Chart

COH data by YCharts

Chevron Corporation (CVX)

500px-Chevron_Logo.svgChevron Corporation qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only issue with the company is the low current ratio, while the Enterprising Investor is satisfied by default despite concerns with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $8.58 in 2010 to an estimated $11.50 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.33% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (See the full valuation)
CVX Chart

CVX data by YCharts

CA, Inc. (CA)

500px-CA_Technologies_brand.svgCA Incorporated qualifies for either the Defensive Investor or the Enterprising Investor with a dividend yield of 3.58%.  The Defensive Investor’s only concern is the low current ratio, and the company qualifies for the Enterprising Investor by default.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.32 in 2011 to an estimated $2.08 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 2.53% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (See the full valuation)
CA Chart

CA data by YCharts

Cisco Systems Inc. (CSCO)

500px-Cisco_logo.svgCisco Systems qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only issue is with the short dividend history, while the Enterprising Investor has no initial concerns with the company.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Microsoft (MSFT).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.20 in 2010 to an estimated $1.65 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 3.40% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)
CSCO Chart

CSCO data by YCharts

What do you think?  Are these companies a good value for Defensive Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author held a long position in Coach Inc. (COH) 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 those holdings within the next 72 hours.  Company logos are taken from Wikipedia or the company website for the sole purpose of identifying the company; this website is not affiliated with the companies it writes about in any way.

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