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, 15 or more years of dividend increases and with a dividend yield at or above 3.8%. The results are presented below:
Old Republic Intl (ORI) 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.
Yield: 3.9% | Years of Growth: 36 | P/B: 1.25
National Retail Properties, Inc. (NNN) is an equity real estate investment trust that invests in high-quality, freestanding retail properties subject to long-term net leases with major retail tenants.
Yield: 4.5% | Years of Growth: 26 | P/B: 1.66
Urstadt Biddle Properties (UBA) is a real estate investment trust that acquires, owns and manages commercial real estate properties primarily in the northeastern United States.
Yield: 4.8% | Years of Growth: 23 | P/B: 1.36
Scana Corporation (SCG) is an energy-based holding company that provides electric, natural gas and telecommunications services.
Yield: 5.0% | Years of Growth: 17 | P/B: 1.23
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 200+ 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: No position in the aforementioned securities. See a list of all my Dividend Growth Portfolio holdings here.
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