5 Stocks With Rising Dividends And Falling Payout Ratios, Undervalued By Graham

One helpful way to find potentially undervalued opportunities is from the “godfather of value investing” himself, Benjamin Graham. Graham created an equation to calculate the maximum fair value for a stock, referred to as the Graham Number. Any stock trading at a significant discount to this number would appear undervalued. The Graham Number only requires two data points: current earnings per share and current book value per share. The Graham Number = Square Root of (22.5) x (TTM Earnings per Share) x (MRQ Book Value per Share). This equation assumes that a stock is overvalued if P/E is over 15 or P/BV is over 1.5. We used the Graham Number to screen for potentially undervalued stocks among the universe of dividend stocks seeing rising dividends year-over-year with falling payout ratios. When a company raises its dividend while seeing a falling payout ratio, it implies that earnings are increasing and that... Read more