23 July Buys By Ben Graham’s Formula

Foreword

About the Ben Graham Formula

The Ben Graham Formula strategy contains ultra-stable stocks that will infrequently lose money if held over a long period of time. It was developed based on a screen in Graham’s book, The Intelligent Investor. For those who have read the book, it is the “Defensive Investor” screen. It selects stocks that are large in terms of sales and total assets, have a strong track record of earnings and dividend payments, have a reasonable current ratio and level of long term debt, and have a low valuation given by P/E Ratios and Price to Book Value ratios. – YCharts

While 11 out of this collection of 35 Graham Dividend stocks are too pricey to justify their skinny dividends, 23 of the 35, by yield, live up to the ideal of offering annual dividends (from a $1K investment) exceeding their price per share. One of the 35 does not show a dividend.

In the current market bounce, the dividends from $1K investments in any of the twenty-three stocks listed above met or exceeded their single share prices as of 7/20/22.

As we are now four months past the second anniversary of the 2020 Ides of March dip, the time to snap up some the twenty-three top-yield Graham value dogs is now… unless another big bearish drop in price looms ahead. (At which time your strategy would be to add to your position in any of these you then hold.)

To learn which of these 23 ideally-priced opportunities are “safer” to buy (namely which have ready cash to pay their dividends). Use the last bullet in the Summary above to navigate to my dividend dogcatcher follow-up article after July 30 in the SA Marketplace.

Actionable Conclusions (1-10): Analysts Estimate 27.93% To 75.02% Top Ten Graham Net Gains To July 2023

Four of the ten top Graham Formula picks by yield were verified as also being among the top ten gainers for the coming year based on analyst 1-year target prices. (They are tinted gray in the chart below). Thus, this yield-based forecast for Graham-derived dividend dogs (as graded by Brokers) was 40% accurate.

Estimated dividend-returns from $1000 invested in each of the highest-yielding stocks and their aggregate one-year analyst median target-prices, as reported by YCharts, created the 2022-23 data-points. Note: target prices by lone-analysts were not used. Ten probable profit-generating trades projected to July 20, 2023 were:

Petroleo Brasileiro SA – Petrobras (PBR) was projected to net $750.15, based on a median of target estimates from fourteen analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 48% greater than the market as a whole.

Costamare Inc (CMRE) was projected to net $653.16, based on dividends, plus the median of target price estimates from three analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 50% over to the market as a whole.

Himax Technologies Inc (HIMX) was projected to net $637.53, based on dividends, plus the median of target price estimates from four analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 96% greater than the market as a whole.

Ternium SA (TX) was projected to net $630.37, based on dividends, plus the median of target price estimates from thirteen analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 51% greater than the market as a whole.

United Breweries Co Inc (Compañía Cervecerías Unidas S.A.) (CCU) was projected to net $583.42, based on the median of target price estimates from six analysts, plus dividends, less broker fees. The Beta number 6% under the market as a whole.

M.D.C. Holdings Inc (MDC) netted $379.86 based on a median target price estimate from five analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 37% greater than the market as a whole.

American Eagle Outfitters (AEO) was projected to net $365.33 based on dividends, plus the median of target price estimates from twelve analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 31% more than the market as a whole.

Sturm, Ruger & Co Inc (RGR) was projected to net $313.95, based on the median of target price estimates from two analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 57% less than the market as a whole.

Owl Rock Capital Corp (ORCC) was projected to net $288.24, based on dividends, plus the median of target price estimates from eleven analysts, less broker fees. A Beta number was not available for ORCC.

Old Republic International Corp (ORI) was projected to net $279.33, based on a median target price estimates from two analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 15% under the market as a whole.

The average net-gain in dividend and price was estimated to be 48.81% on $10k invested as $1k in each of these ten stocks. The average Beta showed these estimates subject to risk/volatility 26% greater than the market as a whole.

The Dividend Dogs Rule

Stocks earned the “dog” moniker by exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as “dogs.” More precisely, these are, in fact, best called, “underdogs”.

Top 35 Graham Value Formula Picks By Broker Targets

This scale of broker-estimated upside (or downside) for stock prices provides a scale of market popularity. Note: no broker coverage or 1 broker coverage produced a zero score on the above scale. This scale can be taken as an emotional component as opposed to the strictly monetary and objective dividend/price yield-driven report below. As noted above, these scores may also be taken as contrarian.

Top 35 Graham Value Formula Picks By Yield

Actionable Conclusions (11-20): Ten Top Stocks By Yield Are The July Dogs of The Graham Formula Pack

Top ten Graham stocks selected 7/20/22 by yield represented five of eleven Morningstar sectors. First place was secured by the lone energy representative, Petroleo Brasileiro SA – Petrobras [1].

Two utilities representatives placed second and eighth, Kenon Holdings Ltd (KEN) [2], and Via Renewables Inc (VIA) [8].

Then two technology members placed third, and fifth, QIWI plc (QIWI) [3], and Himax Technologies Inc [5].

In fourth place was the first of two consumer defensive stocks, Embotelladora Andina SA (AKO.B) [4], the other placed sixth, United Breweries Co Inc [6].

Finally, three financial services representatives placed seventh, ninth and tenth, FS KKR Capital Corp (FSK) [7], Owl Rock Capital Corp [9], and Ares Capital Corp (ARCC) [10],to complete this Graham Formula top ten, by yield, for July.

Actionable Conclusions: (21-30) Ten Graham Value Dividend Stocks Showed 32.3% To 73.9% Upsides To July 2023, With (31) One -5.34% Loser

To quantify top-yield rankings, analyst median-price target estimates provided a “market sentiment” gauge of upside potential. Added to the simple high-yield metrics, analyst median price target estimates became another tool to dig-out bargains.

Analysts Estimated A 3.38% Advantage For 5 Highest Yield, Lowest Priced of Top-Ten Graham Value Formula Dogs To July 2023

Ten top Graham Formula stocks were culled by yield for this monthly update. Yield (dividend/price) results verified by YCharts did the ranking.

As noted above, top-ten Graham Formula Dogs selected 7/20/22, showing the highest dividend yields, represented five of eleven sectors in the Morningstar scheme.

Actionable Conclusions: Analysts Estimated The 5 Lowest-Priced Of Ten Highest-Yield Graham Formula Dividend Stocks (33) Delivering 38.41% Vs. (34) 36.98% Net Gains by All Ten by July 2023

$5000 invested as $1k in each of the five lowest-priced stocks in the top ten Graham Formula dividend pack by yield were predicted by analyst 1-year targets to deliver 3.88% more gain than $5,000 invested as $.5k in all ten. The sixth lowest-priced Graham top-yield stock, Petroleo Brasileiro SA Petrobras , was projected to deliver the best net gain of 75.02%.

The five lowest-priced top-yield Graham Formula dividend stocks for July 20 were: QIWI PLC; Himax Technologies Inc; Via Renewables Inc; Embotelladora Andina SA; United Breweries Co Inc; with prices ranging from $5.67 to $11.39

The five higher-priced top-yield Graham Formula dividend stocks for July 20 were: Petroleo Brasileiro SA Petrobras; Owl Rock Capital Corp; Ares Capital Corp, FS KKR Capital Corp; Kenon Holdings Ltd, whose prices ranged from $11.63 to $42.29.

This distinction between five low-priced dividend dogs and the general field of ten reflected Michael B. O’Higgins’ “basic method” for beating the Dow. The scale of projected gains based on analyst targets added a unique element of “market sentiment” gauging upside potential. It provided a here-and-now equivalent of waiting a year to find out what might happen in the market. Caution is advised, since analysts are historically only 20% to 90% accurate on the direction of change and just 0% to 15% accurate on the degree of change.

Afterword

If somehow you missed the suggestion of the twenty three stocks ripe for picking at the start of the article, here is a repeat of the list at the end:

In the current market bounce, dividends from $1K invested in the twenty-three stocks listed above met or exceeded their single share prices as of 7/20/22.

As we are four months past the second anniversary of the 2020 Ides of March dip, the time to snap up those twenty-three top yield Graham dogs is now… unless another big bearish drop in price looms ahead. (At which time your strategy would be to add to your holdings.)

To learn which of these 23 ideally-priced opportunities are “safer” to buy (namely which have ready cash to pay their dividends). Use the last bullet in the Summary above to navigate to my dividend dogcatcher follow-up article after July 30 in the SA Marketplace.

Recent vs. Break-Even Top Ten Graham Formula Stock Prices

Since all of the top-ten Graham Value Dividend shares are now priced less than the annual dividends paid out from a $1K investment, the following charts compare those at recent prices (top chart) with the break-even pricing of all ten (middle chart) concluding with the dollar and percent variants to all ten top dogs conforming to (but not exceeding) the dogcatcher ideal (bottom chart).

You could look at the bottom chart as an indicator of how high each stock might rise in the coming year or two. However, it also shows how much the price must rise (in either dollars or percentage) before it no longer conforms the standard of dividends from $1K invested exceeding the current single share price.

The net gain/loss estimates above did not factor in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of “dividends” from any investment.

Stocks listed above were suggested only as possible reference points for your Graham Value Dividend dog stock purchase or sale research process. These were not recommendations.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from www.indexarb.com; YCharts.com; finance.yahoo.com; analyst mean target price by YCharts.