My goal is to find companies that are undervalued by 10%-30%. This is the margin of safety I'm looking for. If I find companies with a margin of safety over 30%, I tend to doubt my analysis as there is usually no free lunch on the stock market. I'm not saying I wouldn't buy a company showing a 30% margin of safety, but I would be more cautious about it. Dividend growth assumptions and the use of different discount rates (rate of returns you expect to earn from this investment) will greatly affect the calculations.
I run such calculations weekly on various company shares I own or follow. Here are four companies that are among my Top 10 Dividend Growth Stocks and that show interesting margins of safety: BlackRock (NYSE:BLK), 3M Co (NYSE:MMM), Johnson & Johnson (NYSE:JNJ) and Wells Fargo (NYSE:WFC).
Source: Seeking Alpha
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