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5 Highest Dividend Yields Among Undervalued Companies for the Enterprising Investor – June 2014

5ent-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 Enterprising 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.

This month, Ford Motor Co. (F) drops off the list and is replaced with B&G Foods Inc. (BGS).  Be sure to review the history of this screen to see which companies have been selected previously!

HCP, Inc. (HCP)

logoWith a dividend yield of 5.29%, HCP Inc. for now qualifies for the Enterprising Investor, which is a rather rare achievement for a REIT as normally the level of debt present eliminates them from contention.  In this case, though, the company’s current assets are high enough this quarter to push it into contention for investment.  For the Defensive Investor, the company’s PEmg ratio is too high and the current ratio is not high enough to overcome that burden.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.  From a valuation standpoint, the company appears to be undervalued, having grown its EPSmg (normalized earnings) from $0.57 in 2009 to $1.54 for 2013.  This demonstrated level of growth is above the market’s implied estimate of 9.12% earnings growth, and the ModernGraham valuation model has returned an estimate of intrinsic value that is higher than the market price.  (See the full valuation)
HCP Chart

HCP data by YCharts

People’s United Financial, Inc. (PBCT)

PeoplesUnitedBankPeople’s United Financial has a dividend yield of 4.41% and is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the high PEmg ratio, but the company passes all of the requirements for the Enterprising Investor.  As a result, Enterprising 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.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from a $0.34 in 2010 to an estimated $0.71 for 2014.  This level of demonstrated growth surpasses the market’s implied estimate of 6.29% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the price at this time.  (See the full valuation)
PBCT Chart

PBCT data by YCharts

B&G Foods Inc. (BGS)

bg-foods-logoB&G Foods has a dividend yield of 4.09% and is intriguing to Enterprising Investors but does not qualify for the Defensive Investor.  The Defensive Investor has some major concerns and in fact the only requirements of the investor type which the company passes are the earnings stability and earnings growth.  The Enterprising Investor, on the other hand, only has an issue with the level of debt relative to the net current assets.  As a result, Enterprising 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.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.49 in 2010 to an estimated $1.22 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 9.39% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value exceeding the market price.  (See the full valuation)
BGS Chart

BGS data by YCharts

Coach Inc. (COH)

Official_Coach_Inc_LogoCoach Inc. has a strong dividend yield at 3.97% and is a very intriguing company for Enterprising Investors, having passed all five of the investor type’s requirements.  The company does not quite qualify for the Defensive Investor due to the short dividend history and the high PB ratio.  As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company.  From a valuation perspective, the company looks significantly undervalued after having grown its EPSmg (normalized earnings) from $2.03 in 2010 to an estimated $3.19 for 2014.  This demonstrated level of growth outpaces the market’s implied estimate of 1.08% 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)
COH Chart

COH data by YCharts

Freeport-McMoRan Copper & Gold Inc. (FCX)

500px-Freeport_McMoRan.svgWith a dividend yield of 3.47%, Freeport-McMoRan satisfies the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the low current ratio, as well as the lack of earnings stability over the last ten years and the lack of stable dividend payments over that time frame.  The Enterprising Investor’s only concern is with the high level of debt relative to the net current assets.  As a result, Enterprising 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.  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $0.01 in 2010 to an estimated $2.95 for 2014.  This level of demonstrated growth more than supports the market’s implied estimate of 1.86% 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)
FCX Chart

FCX data by YCharts

What do you think?  Are these companies a good value for Enterprising 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.  Logos are taken from either the company page or Wikipedia for purposes of identifying the company only; ModernGraham has no affiliation with the companies.

3 thoughts on “5 Highest Dividend Yields Among Undervalued Companies for the Enterprising Investor – June 2014

  1. Hi I’m following HCP for quite some time now and I think they are worth buying around the 40 dollars. According to my own valuation Their AFFO increased extremely over the years and together with their high dividend I think it is a safe investment for the long term. Thank you very much for your writings.

  2. In regards to Coach, reading through your commentary on it, you seem to be implying that you disagree with the market’s most recent reactions to their situation. I hear a lot of value investors calling “value trap,” and I’m inclined to believe them. Your numbers don’t lie, but given that the “fundamentals” and assumptions are based on past performance- performance based on extremely fickle fashion trends that are no working against Coach- I wonder what you’re seeing that provides a reasonable expectation of continued ability to grow earnings.

    1. Victor, I simply prefer to let developments work out and see how they affect the numbers rather than engaging in speculating about how it will turn out. Since the numbers are based on normalized earnings, I believe small changes in the competitive environment won’t have significant effects on the calculations. It would take multiple years of poor performance to drag the valuation back down.

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