5 Highest Dividend Yields Among Undervalued Defensive Companies – May 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.

Value investors seeking to follow Benjamin Graham’s methods may also wish to review some 5 Undervalued Dow Components or 5 Low PEmg Companies for the Defensive Investor while proceeding with further research of all of the following companies:

Mattel Inc. (MAT)

200px-Mattel-brand.svgWith a Dividend Yield of 3.92%, Mattel Inc. is suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the only concern is the high PB ratio, while the company passes all of the requirements of the Enterprising Investor.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company including comparing the company to ModernGraham’s valuation of Hasbro Inc. (HAS).  From a valuation side of things, Hasbro appears significantly undervalued after growing its EPSmg (normalized earnings) from $1.35 in 2009 to $2.25 for 2013.  This demonstrated level of growth is greater than the market’s implied estimate of 4.37% and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.  (See the full valuation of Mattel)
MAT Chart

MAT data by YCharts

Intel Corp (INTC)

500px-Intel-logo.svgIntel Corp. has a dividend yield of 3.46% and fares extremely well in the ModernGraham requirements, passing every test of both the Defensive Investor and the Enterprising Investor.  This is a company that appears to present low risk of financial strife and may present relative safety of principal.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the opportunity.  An example of further research would be to look into some competitors, such as by a review of ModernGraham’s valuation of Hewlett-Packard Company (HPQ) and ModernGraham’s valuation of Texas Instruments (TXN).  From a valuation standpoint, the company looks very strong, having grown its EPSmg (normalized earnings) from $0.95 in 2009 to $2.00 for 2013.  This level of growth easily supports the market’s implied estimate for growth of 2.25%, and the ModernGraham valuation model returns an intrinsic value that exceeds the current market price.  Therefore, the company appears to be undervalued at the current time.  (See the full valuation of Intel)
INTC Chart

INTC data by YCharts

Chevron Corp (CVX)

500px-Chevron_Logo.svgWith a dividend yield of 3.46%, Chevron Corporation is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only issue with the company is the low current ratio, and the Enterprising Investor’s only issue is the high level of debt relative to the company’s current assets.  The company passes every other requirement of the two investor types.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a review of ModernGraham’s valuation of Exxon Mobil (XOM), and ModernGraham’s valuation of ConocoPhillips (COP).  From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $8.09 in 2009 to $11.58 for 2013.  This is a solid level of growth that outpaces the market’s implied estimate of earnings growth of 1.10%, and the ModernGraham valuation model accordingly returns an estimate of intrinsic value that surpasses the market price by more than our margin of safety.  Therefore, the company appears to be undervalued presently.  (See the full valuation of Chevron)
CVX Chart

CVX data by YCharts

CA, Inc. (CA)

500px-CA_Technologies_brand.svgWith a dividend yield of 3.44%, CA Technologies looks very good in the ModernGraham approach based on Benjamin Graham’s methods for value investors.  The company passes the requirements of the Defensive Investor, failing only the current ratio requirement, and as a result is suitable for both Defensive Investors and Enterprising Investors.  All Intelligent Investors should feel comfortable proceeding with further research to determine if CA Technologies would be right for their individual portfolios, and that research may include reviewing other with a particular emphasis on a comparison with ModernGraham’s valuation of International Business Machines (IBM) and ModernGraham’s valuation of Oracle Corp (ORCL).  From a valuation perspective, CA Technologies also looks good, having grown its EPSmg (normalized earnings) from $0.76 in 2009 to an estimated $2.02 for 2013.  This is a solid level of growth that leads the ModernGraham valuation model to calculate an intrinsic value that surpasses the market’s current price.  Therefore, the company appears to be undervalued at the present time.  (See the full valuation of CA Inc.)
CA Chart

CA data by YCharts

Wells Fargo & Co. (WFC)

500px-Wells_Fargo_Bank.svgWells Fargo Corp has an attractive dividend yield of 2.86% and is a company that is intriguing to all value investors as it passes all of the requirements of both the Defensive Investor and 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 the company to other opportunities such as through a review of US Bancorp (USB) and KeyCorp (KEY).  As for the valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.83 in 2010 to an estimated $3.48 for 2014.  This solid level of demonstrated growth more than supports the market’s implied estimate of 2.79% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.  (See the full valuation of Wells Fargo)
WFC Chart

WFC 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 did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing those holdings within the next 72 hours.


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