When looking for cheap stocksThe value for money (P / B) is one that I like to consider. The P / E ratio is calculated as the share price divided by the book value per share. The book value is most often calculated as assets minus liabilities.
Some people conservatively calculate book value as assets minus intangible assets minus liabilities. I prefer this calculation as it excludes goodwill and other intangible assets that may be difficult to recover in a liquidation, and that is what I will use in the calculations below.
Similar to the rate of return, with extreme P / B values you have to ask yourself why it is there. If you find that an unusually low P / E ratio is the result of an irrational market move, buying it can result in both a higher return and significant future capital appreciation.
A low P / E ratio could indicate that a stock is undervalued or distressed. Because GAAP accounting is primarily based on historical cost, a viable growing business is usually worth more than its book value. However, there are times when good and bad companies are punished. It is our job as investors to separate the good companies from those that have fundamental problems.
This week I screened mine Dividend growth stocks Database for stocks with a P / E ratio of 1.6 or less, a dividend increase of 15 years or more, and a dividend yield of 4.0% or more. Selected results are listed below:
Yield: 4.1% | Years of growth: 32 | P / B: 1.85
Southern Company (SO) is an Atlanta-based energy holding company and one of the largest electricity producers in the United States
Yield: 4.1% | Years of growth: 20 | P / B: 2.49
Consolidated Edison, Inc. (ED) is an electricity and gas utility holding company serving parts of New York, New Jersey, and Pennsylvania.
Yield: 4.2% | Years of growth: 48 | P / B: 1.46
Realty Income Corporation (O) is a stock real estate mutual fund that owns, develops, and manages retail properties, primarily single rental properties, in most parts of the United States. The trust is also among a handful of REITS that pay monthly dividends. Yield: 4.3% | Years of growth: 26 | P / B: 2.54
Chevron Corporation (CVX) is a globally integrated oil company (formerly ChevronTexaco) involved in exploration, production, refining and marketing, and petrochemicals. Yield: 4.9% | Years of growth: 33 | P / B: 1.59
As with previous screens, the data presented above is in its raw form. Some of the companies would be disqualified for poor dividend fundamentals. However, some of the others may be worth additional due diligence.
My database, D4L-Data, is a table with more than 20 columns of information about the 150+ companies I track. The data is sortable and has built-in buttons and macros to make it easier to use. Companies included in the list are companies that have had dividend growth in the past. The D4L data The table is part of the D4L Premium Services and is updated every Saturday for subscribers.
Full Disclosure: Long MCY, SO, ED, O, CVX,
Tags: MCY, SO, ED, O, CVX,