19 Stocks For Value Narrowed By Dividend Growth And Yield

The Winners Are Found among the 19 stocks selected first for good value.

The due diligence criteria used for “RIG” stocks are the following:

1- Value

Looking for value requires knowing key investment metrics. The following is a list of the criteria and basis for the metrics in this article.

– Earnings

Earnings provide profits and drive the market price and dividends. High earnings after all other expenses, including debt, create high free cash flow. Higher cash flows make a good barometer for possible and rising dividends, important for income investors.

– P/E = Price/Earnings

Any stock with a current P/E less than its normal 5- or 10-year P/E is usually considered undervalued. It is a key metric used in evaluations for average performance. Knowing the normal or average P/E is important, with a P/E of 15 used as an average makes for a good starting place for those comparisons.

– EPS Yield = Earnings per share Yield = E/P

E/P is the inverse of the P/E. If 15 is used for an average, then the EPS yield desired would be >6.5%, actually ~6.6% (or 1/15). Since it is the inverse of the P/E they are tied together and knowing either one generally can tell you a lot about valuation.

The chart below shows 19 stocks found in Rose’s Income Garden “RIG”. They are the winners as they have a current P/E below their normal average of 10 years and with an EPS Yield of >6.5%. The statistics were taken from FAST Graphs, “FG”, a service to which I am a subscriber. The undervaluation of P/E from the 10 year was determined and listed from high to low by that %.

Abbreviations used are:

Current $Pr/sh = Price on Feb. 15, 2024.

Recent P/E as on Feb. 14, 2024.

10yr P/E = 10-year P/E as calculated by FAST Graphs.

UV = Undervalued.

10 yr % UV = The % undervaluation from the average 10-year P/E.

EPS % Yield = The earnings per share yield as calculated by FAST Graphs.

Chart #1 with 19 Winners

Undervalued and recent P/E around 15 or less.

Based on these value metrics alone, they are candidates for capital gains.

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Chart #2

Undervalued with P/E >15

This next chart shows undervalued stocks by P/E, but without an EPS% yield > 6.5%

In most cases, the P/E is also above 15. (note Walgreens is the exception).

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These also could be candidates for capital gains. Many are utilities and consumer staples.

Remember this review is for historical 10-year valuation only.

Chart #3

Overvalued “OV” by P/E being negative over the last 10 years.

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McDonald’s is almost sitting at fair value.

2- Dividend Record

Using the 18 undervalued from the first list, the following is a look at the dividend paying record, dividend growth rates and available S&P Credit ratings.

Abbreviations used:

S&P CR = The Standard & Poor’s Credit rating for debt

Div Years = Number of years of paying a rising dividend

2024 E Div = Estimated or known current yearly dividend in US$.

Div Yld = dividend yield using price from the chart above and dividend in the chart below.

Div 5yr GR % = The average 5-year dividend growth rate.

1yr DGR = 1 year dividend growth rate %.

Yld 5yr /+DGR = current dividend yield + 5-year DGR.

Yld 1yr /+DGR = current dividend yield + 1-year DGR.

Those with no credit rating and a varied dividend track record have no entry in the appropriate box.

2 of the stocks, BTI and VOD have varied dividends secondary to foreign exchange rate issues.

The 5-year DGR + current yield is a good measure of success when used with the yield to measure against inflation.

The 1 year is included to just show the current and perhaps future dividend trend.

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There are 6 stand-outs for 5-year dividend growth + yield being 10% or better. Those numbers and the tickers are in bold: BMY, UGI, MO, CVX, LMT and CMI.

For 1 year dividend growth only SHEL, XOM, CVX, CVS and GPC are on the rise. Most others are even, and some are down. A positive trend is a dividend investors’ friend.

3- Quality and Credit Rating

Debt levels and having an investment grade credit rating (on down to BBB-) show the company has better borrowing interest rate levels if cash of any kind is needed.

There are 2 stocks that have no or low credit rating: SBLK and TEVA.

Star Bulk Carriers without a credit rating means one must look for other debt metric measures. “FG” shows the dividend payout ratio for SBLK to be 85.3% showing cash flow is good, but high. “FG” also lists long-term debt to capital as 34% making cash flow acceptable.

Teva has a low BB- credit rating and does not pay a dividend, so there is no payout to look at. “FG” shows long-term debt to capital to be 66.6%. Rather high, but passable. It’s a fact known by many that TEVA has been working diligently to pay off long-term debt and is now seeing better results.

4 -Years of paying a rising dividend

For dividend investors, this metric is a keystone for the quality and success of a company. The 5-year DGR + dividend yield is used as a measure for rising returns.

I included the 1-year DGR as a trend for the 5-year measure. The future is hard to predict and looking at the latest raise is at least showing a forward trend.

The # of years for rising dividends does not necessarily reveal the quality of those raises. I like to look at what could be and not just what has been, keeping the past as a very helpful metric for due diligence.

Winners

There Are 3 Winners found in all 3 charts.

Below are the 3 main charts with the leading candidates.

To beat the current money market interest rate (~4.7-5.5%) one can look at:

By Value: 19

These are listed by the highest % under the normal 10-year P/E along with an EPS% yield of 6.5% or more. This is a repeat of Chart #1 above and is only placed here for easy reference.

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By dividend yield alone:

I only show from highest to lowest and only down to 4.8%.

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By Dividend Yield & 1-year DGR Alone:

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Conclusion and Winners

Add these metrics all together with your own goals to make good choices and there are many good choices. The winners certainly are not limited to just the ones listed, but it’s a good start for due diligence.

There are 3 stocks that appear with high ratings from the metric lists are:

MO, UGI and BMY.

– MO is undervalued possibly secondary to being a tobacco stock, it has a high yield and just raised the dividend last year. Dividend champion of 54 years.

– UGI is a 36-year dividend champion, is undervalued and has a high yield. The next dividend announcement for July will be interesting and should be a raise.

– BMY just makes the yield chart with 4.8% but wins with undervaluation and dividend raises. It has a 14-year rising dividend streak.

They are strong components of the current portfolio but remains tempting to add more.

The “RIG” goals of finding good value, quality, low debt stocks that are also dividend payers have produced a well-diversified income portfolio of now 83 total investments.

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