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Most dividend growth investors use a variety of financial ratios in order to screen out stocks. For example, I start my search for dividend stocks by only looking for companies with a price to earnings ratio (P/E) that is less than 20. I am not looking to buy any stock trading at greater than 20 times earnings.

Next, I screen out companies that have a dividend yield greater than 2.5%. While there are plenty of quality companies with a yield below this value, I am only interested in those paying a healthy yield.

A company’s payout ratio (anything below 60) and long term dividend growth rate (10 yr > 6%) are also important factors that I use to screen for dividend stocks.

## Where Can I Find These Financial Statistics?

Investors can find calculations like the price to earnings ratio (P/E) and dividend yield for a stock on most financial websites for free. Online stock brokers also typically provide their customers with a wealth of financial data and calculations on individual stocks.

Another way investors can get at this type of data is to calculate it on their own. While grabbing key financial data off a website for a stock is quick and easy, I think it is also important to know where these calculations come from.

One calculation that I often compute on my own before buying a dividend stock is the **book value per share (BVPS)**.

## What is Book Value per Share (BVPS)?

*The book value for a company is the amount of money that will be left over, should the company decide to dissolve. Once all assets are liquidated and all debtors are paid, the book value is the remaining dollars for common shareholders. The book value (or shareholder equity) can then be divided by the number of outstanding shares to get the per share value.*

It is important to note that the BVPS is only a snapshot of the current equity of a company and not necessarily an indication of the future.

**BVPS = Stockholder Equity / Outstanding Shares**

### Stockholder Equity

One of the values used to calculate BVPS is **stockholder equity**. In order to find this value, we must subtract the total liabilities from the total assets of the company. All of these values can easily be found on the company’s balance sheet.

**Stockholder Equity = Total Assets – Intangible Assets and Liabilities**

### Number of Outstanding Shares

The second value required to calculate BVPS is the number of outstanding shares for a company. This value can easily be found on any financial website, through your online broker, or even on the company’s investor website.

## How to Calculate Book Value Per Share

We already know the 2 values required to calculate book value per share (BVPS) – stock holder equity & number of outstanding shares.

Let’s take a look at an example of one of my current holdings – Aflac (AFL). *I have owned shares of AFL for over 3 years and just recently added to my position.*

At the time of this writing, the company had the following financial metrics –

**Share Price**– $62.06**Shares Outstanding**– 442,440,000**Assets**– $119,767,000,000**Liabilities**– $101,051,000,000

** Data provided by Fidelity for the 4th quarter of 2014 for AFL.*

Based on the information above, we can calculate Aflac’s stockholder equity to be **$18,716,000,000** ($119,767,000,000 – $101,051,000,000).

Since we already know the total number of common shares outstanding (442,440,000), we can easily calculate the company’s book value per share as follows –

**BVPS = ($18,716,000,000 / 442,440,000) or 42.30**

### P/B Ratio

To take it a step further, the price to book ratio (or P/B ratio) can then be calculated for a stock. A simple calculation of dividing our current share price ($62.06) by the book value per share (42.30) will give us the P/B ratio.

**P/B Ratio = Current Share Price / BVPS**

Using our same example from above, we can calculate Aflac’s **current P/B ratio** = 1.47 ($62.06 / 42.30).

In theory, any stock with a P/B ratio less than 1 would mean that shares are selling for less than the value of the company’s assets.

## Analyzing Book Value per Share

So now that we have calculated the BVPS for Aflac (as of 12/31/2014), what in the world does this tell us? Used by itself, it doesn’t really provide a lot of useful information. Since our current share price is $20 higher ($62.06) than the book value ($42.30), it would appear on the surface that shares of AFL are way overpriced compared ot the company’s equity.

In reality, the two values are not really related to each other at all.

The share price of the stock is the last price in which an investor is willing to buy.

The book value simply tells investors the value of the company based on its balance sheet.

As a dividend income investor, I am looking for companies that meet several pieces of criteria. I don’t look strictly at share price, nor do I look solely at the P/B ratio. Instead I use several factors that include – payout ratio, dividend growth rate, current yield, and price to earnings ratio to screen for stocks.

Once I narrow down the list of dividend stocks that fit my criteria, I then look to see which companies are undervalued – which is where the price to book value comes in handy.

Do you use the book value per share in your stock analysis to find undervalued companies?