In previous installments of the Smackdown series, I screened the Dividend Champions list of companies that have paid higher dividends for at least 25 straight years (which can be found here. ) using factors such as yield, payout ratio, and, most recently, the Price/Sales ratio. This time, I decided to start with the newest column, the Premium or Discount to the Graham Number, which can be located in column T. This is a basic measure of "fair value" that was developed by Benjamin Graham, the "father of value investing."
The Graham Number is a relatively simple calculation, in that it involves use of a company's Earnings Per Share and its Book Value Per Share (or BVPS). Since Graham felt that 15 was a reasonable Price/Earnings ratio and that 1.5 was a reasonable Price/Book Value ratio, those numbers are multiplied against the EPS and BVPS and the square root of the product is considered the most an investor should pay for a particular stock. The actual formula is shown as:
No comments:
Post a Comment