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The 3 Most Undervalued Canadian Dividend Aristocrats

Despite choppy waters, the market is still in the midst of a bull run. As such, it can be difficult to find undervalued stocks to pick up on the cheap.

That being said, good value can be found if you look in the right places. One of my favourite metrics to analyze company’s value is the Graham number. Named after Benjamin Graham, the “father of value investing,” the Graham number measures a company’s fundamental value. It’s the fair value of the stock and is in the upper range of what an investor should pay for a stock.

If a company’s stock price falls below its Graham number, it can be considered undervalued. With that in mind, here are the three most undervalued Canadian Dividend Aristocrats as compared to their  Graham numbers.

A REIT Finding its groove

Coming in at third on the list is InterRent Real Estate Investment Trust (TSX:IIP.UN). The company is currently trading 53% below its Graham number of $23.15. Believe it or not, it was even more undervalued near at the start of the year. The company has been finding its groove and has returned 18% year to date (YTD).

The company, which pays out its dividend monthly, has a a six-year dividend-growth streak. The company last raised dividends by 11.11% back in November.

Looking for more information?  Fool contributor Joey Frenette wrote a good piece on the company.

An alternative lender struggling to shed a negative perception

Next up is Equitable Group Inc. (TSX:EQB), which is also trading 53% below its  Graham number. With a fair value of $116.86, the company’s current value is a direct result of the negative industry sentiment. Equitable Group is an alternative mortgage lender, and following Home Capital Group Inc.’s fall from grace, the entire industry has been under pressure. Coupled with new mortgage rules, the company’s stock has struggled.

However, Equitable Group is being thrown out with the bath water, so to speak. The company’s record has been impeccable. It has grown earnings by a compound annual growth rate of 14.6%, not once posting negative earnings growth. Same for the company’s revenues.

Equitable Group has a seven-year dividend-growth streak, and it has been raising dividends at a torrid base. This Canadian dividend-growth machine has raised dividends in four straight quarters. No other Aristocrat can lay claim to the same performance.

Little-known investment fund

Topping our list is Canadian General Investments Ltd. (TSX:CGI). The company is trading 64% below its Graham number of $68.16. Canadian General is a little-known closed-end investment fund that invests primarily in North American corporations.

The company has grown revenues and net asset value (NAV) at an impressive pace over the past couple of years. As of its most recent results, its NAV stood at $35.20, further exemplifying its current value.

The company is a new addition to the Canada’s Dividend Aristocrat list, having raised dividends for five straight years. Its five-year dividend-growth rate of 24.5% is also one of the highest among its fellow Aristocrats.

Use the Graham number as a starting point

The Graham number should never be used in isolation. It is a great starting point for investors to quickly identify companies that are trading below intrinsic value based on a limited set of fundamentals. The Graham number is actually a subset of two of Benjamin Graham’s seven value principles for defensive stocks.

Be sure to check these companies against the other five rules that touch on earnings, debt, dividends, growth, and revenues.

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Fool contributor Mat Litalien has no position in any of the companies listed. 

 

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