By Ahmed Ishtiaq
Recently, our dividend picks have received a lot of attention from our readers. We try to pick the stocks that have a solid history of dividends and ability to maintain or increase current dividend levels. For this article, we decided to pick three stocks with dividend yields of over 8%. In addition to the dividend yield, we also considered the growth in operating cash flows, free cash flows and payout ratio. We believe these stocks offer extremely attractive dividend yields and will be able to maintain dividends in the future.
Enerplus Corp. (ERF) is an energy company with a diversified asset base of oil and gas properties across a variety of resource plays. The company owns oil and gas properties in both U.S. and Canada. Enerplus's operations include Crude Oil Waterfloods, Tight oil, Marcellus Shale Gas, Liquids Rich Natural Gas. The company is growing land position in the Deep Basin and liquids rich gas regions of British Columbia and Alberta.
- The company recently cut its dividends in half in order to cope with the expected slow growth. At the moment, Enerplus pays $0.09 every month. Management made it clear that despite slow growth, the company expects to maintain its dividend.
- Low natural gas prices have hurt almost all the players in the market. However, Enerplus's cash flows still remain strong. The company generated $588 million in cash flows from operations in the trailing twelve months and paid cash dividends of $332 million. At the moment, Enerplus is reducing its capital expenditures, which should improve its free cash flows in the future.
- At the moment, the payout for Enerplus based on free cash flows is at 159%. However, an increase in operating cash flows and a decline in capital expenditures will bring the ratio down.
- Commodity prices will improve over the next year, which should enable the company to report better cash flows. Furthermore, Enerplus is trying to improve its operations by focusing more on crude oil and selling non-core assets. There is less volatility in the liquids segment than the natural gas segment.
Cliffs Natural Resources Inc.
Cliffs Natural Resources (CLF) is the biggest producer of iron ore in North America. The company operates mines in the United States and Canada. CLF also owns two iron ore mines in Australia and has a minority stake in an iron ore asset in Brazil. In addition to iron ore, Cliffs operates several coal mines in the U.S. and owns a large chromite project in Canada.
- The company has an impressive history of dividends, and it has increased dividends consistently. Currently, CLF pays an annual dividend of $2.50, yielding 8.46%.
- Cliffs has incredibly strong cash flows at the moment. The company generated over $1 billion in operating cash flows during the past twelve months, and $2.23 billion at the end of last year. Free cash flows stood at $1.4 billion at the end of 2011. However, free cash flows for the trailing twelve months have come down drastically, and currently stand at -$177 million. There has been a substantial increase in capital expenditures, which has caused the free cash flows to come down.
- The decrease in free cash flows did not affect the dividend payments, and the company paid $258 million in cash dividends.
- At the moment, the stock trades at extremely attractive multiples. It has a P/E ratio of 4.6, compared to the industry average of 13.9. CLF is also cheap based on P/B and P/S ratios. The stock has P/B and P/S ratios of 0.7 compared to the industry averages of 2.1.
Boardwalk Pipeline Partners LP
Boardwalk Pipeline Partners (BWP) was formed in August 2005 to acquire and develop natural gas pipelines and storage facilities. The partnership owns three interstate natural gas pipeline systems, comprising more than 14,000 miles of pipe between Texas and Ohio, and 11 underground natural gas storage facilities.
- BWP has a solid history of cash distributions, and the company has increased its cash distributions consistently since 2006. At the moment, BWP pays $2.13 in annual cash distributions, yielding 8.23%.
- Cash flows from operations are fairly strong for the company. At the end of 2011, it generated $453 million in operating cash flows. However, in the trailing twelve months, the operating cash flows have gone up to $522 million.
- BWP generated $362 million in free cash flows and paid cash dividends of $458 million in the last twelve months.
- The stock is currently trading at a P/E of 16.3, compared to the industry average of 28.6. Furthermore, the stock is trading at a P/B ratio of 1.7, compared to the industry average of 2.6.
The three stocks mentioned in this article offer an extremely attractive dividend yield. Almost all of these stocks are trading at a discount at the moment. We believe that these companies should be able to maintain the current level of dividends. Investors looking for high dividend yield should consider these stocks for their income portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.