Some people conservatively calculate book value as Assets less Intangibles less Liabilities. I prefer this calculation since it excludes goodwill and other intangibles which might be difficult to recover in a liquidation, and that is what I will use in the calculations below.
Similar to yield, when P/B is at an extreme you have to question why it is there. If you determine an abnormally low P/B is the result of an irrational market movement, a purchase could result in both a higher yield and significant future capital appreciation.
A low P/B ratio could indicate a stock is undervalued or distressed. Since GAAP accounting is mostly based on historical cost, a viable growing company will normally be worth more than its book value. However, there are times when good companies will be punished along with the bad. It is our job as investors to separate the good companies from those that have fundamental problems.
This week, I screened my dividend growth stocks database for stocks with a P/B of 1.6 or lower, 10 or more years of dividend increases and with a dividend yield at or above 3%. The results are presented below:
Cincinnati Financial Corp. (CINF)
Yield: 3.8% | Years of Growth: 54 | P/B: 1.22
Cincinnati Financial Corp. is an insurance holding company that primarily markets property and casualty coverage. It also conducts life insurance and asset management operations.
Laclede Gas Compay (LG)
Yield: 3.7% | Years of Growth: 11 | P/B: 1.26
Laclede Gas Compay primarily distributes natural gas on a retail basis in St. Louis and nearby suburban areas.
Chevron Corporation (CVX)
Yield: 3.8% | Years of Growth: 27 | P/B: 1.46
Chevron Corporation is a global integrated oil company (formerly ChevronTexaco) with interests in exploration, production, refining and marketing, and petrochemicals.
Consolidated Edison, Inc. (ED)
Yield: 4.2% | Years of Growth: 41 | P/B: 1.48
Consolidated Edison, Inc. is an electric and gas utility holding company serves parts of New York, New Jersey and Pennsylvania.
People's United Financial Inc. (PBCT)
Yield: 4.8% | Years of Growth: 17 | P/B: 1.60
People's United Financial Inc. provides a full range of banking and financial service products to individuals, corporations and municipal customers in the U.S. Northeast.
Mercury General Corp. (MCY)
Yield: 5.0% | Years of Growth: 27 | P/B: 1.48
Mercury General Corp., operating primarily in California, writes a full line of automobile coverage for all classifications of risk.
Old Republic Intl (ORI)
Yield: 5.2% | Years of Growth: 33 | P/B: 1.05
Old Republic Intl is an insurance holding company that engages mainly in the general (property and liability), title, and mortgage guaranty and consumer credit indemnity run-off businesses.
As with past 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 an Open Office spreadsheet containing more than 20 columns of information on the 250+ companies that I track. The data is sortable and has built-in buttons and macros to make it easy to use. Companies included in the list are those that have had a history of dividend growth. The D4L-Data spreadsheet is a part of D4L-Premium Services and is updated each Saturday for subscribers.
Full Disclosure: Long CINF, CVX, ED, PBCT in my Dividend Growth Stocks Portfolio, and long MCY, ORI in my High-Yield. See a list of all my dividend growth holdings here.
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