The Most Undervalued Dividend Champions

Savvy investing is all about value, at least according to Jim Cullen, president of Schafer Cullen Capital Management, in an interview with the FT. In his four-plus decades of industry experience, he's seen countless growth bubbles blow up in investors' faces. In the end, it's the slow and steady, fairly priced stocks that almost always win the race. And for Cullen, dividend yield is a major part of the valuation equation.

Case in point: Say you $1000 invested in the S&P 500 in 1957. With dividends reinvested, this would have yielded you a $149,598 by 2009. If that same starting amount had instead been invested in the 20% of stocks with the lowest dividend yields, it would only have resulted in a measly $60,586; but $1000 invested in the 20% of stocks with the highest dividend yields would have netted you a whopping $577,587.

Cullen's advice? First of all, be patient: If you "invest on a long-term basis, five years gives you enough time for earnings to be the main driver of a share price, not momentum, fear, or greed." And take it from value investing guru Benjamin Graham: "the Achilles' heel of the investment business is overpaying for things, getting over-excited for growth prospects."

So look to the trinity of value investing ratios: price/earnings, comparing current share price to per-share earnings; price/book, which posits a stock's market value in relation to book value; and of course, dividend yield.

How can you be sure you're not overpaying for dividends? You'll have to crunch the numbers -- but luckily, we already did some of the work for you.

We started with a list of about 100 Dividend Champions -- stocks that saw 25 consecutive years of increasing dividend payouts, as identified by the DrIP Investing Resource Center. We then narrowed down the list by focusing on the six most undervalued Dividend Champions, as defined by the price/earnings, price/sales and price/book ratios. (Click here to access free, interactive tools to analyze these investing ideas.)

Valuation data sourced from Reuters. The list has been sorted alphabetically.

Company

Dividend Yield

P/E Ratio (TTM)

P/S Ratio (TTM)

P/B Ratio (MRQ)

Black Hills (NYSE: BKH  ) 4.50% 18.63 vs. industry average at 21.25 0.97 vs. industry average at 1.22 1.17 vs. industry average at 2.16
Consolidated Edison (NYSE: ED  ) 4.70% 14.9 vs. industry average at 21.25 1.09 vs. industry average at 1.22 1.24 vs. industry average at 2.16
Leggett & Platt (NYSE: LEG  ) 5.33% 16.86 vs. industry average at 19.46 0.9 vs. industry average at 1.13 2 vs. industry average at 2.27
Pentair (NYSE: PNR  ) 2.31% 18.68 vs. industry average at 23.18 1.11 vs. industry average at 2.01 1.59 vs. industry average at 1.67
Target (NYSE: TGT  ) 1.84% 15.1 vs. industry average at 19.05 0.59 vs. industry average at 0.62 2.59 vs. industry average at 3.77
Wal-Mart Stores (NYSE: WMT  ) 2.20% 14.04 vs. industry average at 18.99 0.48 vs. industry average at 0.62 3.1 vs. industry average at 3.78

Interactive Chart: Press Play to see how annual returns have fluctuated for all the stocks mentioned above.


Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.

Wal-Mart Stores is a Motley Fool Inside Value pick. Wal-Mart Stores is a Motley Fool Global Gains recommendation. The Fool owns shares of Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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