This article will focus on a stock screen that I ran looking for high paying dividend stocks that have moved up in price very recently and that have a decent payout ratio. The stock screener had the following attributes:
- A market capitalization of a mid cap stock
- A component of the NYSE or the NASDAQ
- A one day price change of greater than or equal to 2% and less than or equal to 10%
- A dividend yield of 6% or greater
- A payout ratio below the industry average
Please note that on the following stocks, no further research other than what is being presented has been conducted. Please conduct your own research and due diligence before deciding if you would like to invest in these stocks. This screener was run on Jan. 2, 2013, after the market closed. It produced five stocks. Here are the five stocks.
The first stock produced by this screen was Cliff Natural Resources Inc. (CLF). Over the past 52 weeks, the stock price of this company has fallen by 38.14%. Over the past five days, however, the stock is up 9.08%. It has a market capitalization of $5.5 billion, which makes it the second largest company of this screen by market cap. The company is in the metal mining industry. It currently pays an annual dividend of 2.50, giving it a current yield of 6.5%. It has a trailing P/E ratio of 6.13 and a forward P/E ratio of 13.07.
Cliffs Natural Resources Inc. engages in the production of coal and ore. Based on analyst estimates for EPS for the fiscal year ending in December of 2012, it is scheduled to earn $3.59. Based on its current annual dividend of $2.50 per share, this is a payout ratio of 69.64%. The historical dividend information for the company shows that it increased the quarterly dividend from .28 per share to .625 per share in April of 2012. Based on its December 31, 2011 cash flow statement, cash flow from operating activities less capital expenditures (free cash flow) was $1,408,100,000. This easily supported the 2011 dividends of $118,900,000 that were paid out. If you believe the coal industry has a bright future ahead this year, as this author does, now may be a great time to purchase a stock that has fallen in price as much as it has over the past year.
The second stock produced by this screen was El Paso Pipeline Partners L.P. (EPB). Over the past 52 weeks, the stock price of this company has risen by 6.79%. This 52 week price change is the second highest out of these five companies highlighted here. It has a market capitalization of $8 billion, which makes it the largest company of this screen by market cap. The company is in the natural gas utilities industry. It currently pays an annual distribution (as it is a partnership, not a corporation) of 2.32, giving it a current yield of 6.3%. It has a trailing P/E ratio of 18.66 and a forward P/E ratio of 17.75.
El Paso Pipeline Partners is involved in the interstate storage and transportation of natural gas. For the current fiscal year ending in December of 2012, the company is estimated by analysts to have EPS of $2.09. For a limited partnership, it is typical to see an annual distribution amount that is almost as much (if not greater than) as its annual EPS. In this case, the distribution for 2012 will exceed EPS. In looking at the three quarterly cash flow statements for 2012 so far, the company's annual distribution has been supported by the change in cash for each quarter. The change in cash and cash equivalents for the three quarters in 2012 combined was a decrease of $52,000,000. As of September 29, 2012, there is still $68,000,000 of cash on the balance sheet. On November 15, 2012, a Forbes article noted that the company's stock was oversold at that point. On that day, the stock price was $34.31. On 1/2/2013, the stock closed at $38.16. In just that time period, that has produced a return of 11.22%, not including any distributions.
The next stock produced by this screen was Prospect Capital Corporation (PSEC). Over the past 52 weeks, the stock price of this company has risen by 17.01%. That price change over the past 52 weeks is the largest price increase over that period of time out of these five companies discussed here. It has a market capitalization of $2.3 billion. The company is in the miscellaneous financial services industry. It currently pays an annual dividend of 1.32, giving it a current yield of 12.1%. It has a trailing P/E ratio of 7.09 and a forward P/E ratio of 8.81.
Prospect Capital Corporation is a business development company. For the current fiscal year, which ends in June of 2013, the company is estimated by analysts to have EPS of $1.48. Its current annual dividend is $1.32. That represents a 89.19% payout ratio of that EPS estimate. This company pays the highest dividend rate (12.1%) of the five companies discussed here. Its cash distribution to shareholders was recently announced in early December. This is another company that will typically distribute the majority of its earnings to shareholders. On November 12, 2012, Stifel Nicolaus upgraded the company from a sell rating to a hold rating. The company's price increase over the past 52 weeks, I feel, can be strongly attributed to its double digit earnings growth.
For our fourth stock, we have Spectra Energy Partners L.P. (SEP). Over the past 52 weeks, the stock price of this company has fallen by 2.28%. It has a market capitalization of $3.2 billion. The company is in the natural gas utilities industry. It currently pays an annual distribution (as it is a partnership, not a corporation) of 1.94, giving it a current yield of 6.2%. It has a trailing P/E ratio of 19.13 and a forward P/E ratio of 19.14.
Spectra Energy Partners engages in the transportation and storage of natural gas through its subsidiaries. Since it is a limited partnership, owners of shares receive distributions, not dividends. This creates a different tax situation. Typically for this type of entity, as noted earlier, the majority of earnings will be distributed to owners. For the current fiscal year ending in December of 2012, the company is estimated by analysts to earn $1.67 per share. Its annual distribution this year of $1.94 exceeds this amount of earnings. In looking at its 2012 cash flow statements and its December 31, 2011 cash flow statement, the annual distributions have been significantly funded by the sale of stock, by net borrowings, and by other cash flows from investing activities. These factors appear to have enabled the company to add to the annual distribution to arrive at the amount it has been distributing to owners. As of September 29, 2012, its total debt to equity ratio based on its balance sheet is only .4098.
Lastly, we have TC Pipelines, L.P. (TCP). Over the past 52 weeks, the stock price of this company has fallen by 14.91%. It has a market capitalization of $2.2 billion, making it the smallest company out of these five by that metric. The company is in the natural gas utilities industry. It currently pays an annual distribution (as it is a partnership, not a corporation) of 3.12, giving it a current yield of 7.7%. It has a trailing P/E ratio of 15.43 and a forward P/E ratio of 16.66.
TC Pipelines transports natural gas to locations in the United States and in Canada. For the fiscal year ending in December of 2012, analysts expect the company to earn $2.58 per share. Its annual distribution this year has been $3.12 per share. The 2011 and 2012 (three quarters) cash flow statements show that dividends (or distributions) that are paid out very closely correlate to free cash flow (cash flow from operating activities less capital expenditures). This rationale for how distributions can exceed earnings is further explained in this article. So far this year, the company has missed earnings estimates in two of the three quarters and met them in the other quarter. In looking at the 52 week price change, the earnings misses have contributed significantly to the drop in the stock price in my opinion. This is especially true when the company's distributions are so closely tied to its earnings and free cash flow.
The following chart shows the percentage price change of these companies versus the S&P 500 for the time period of 1/3/2012 through 1/2/2013.
CLF data by YCharts
As the price chart shows, a portfolio of equal weighting versus the S&P 500 would have its results weighed down by the price performance of Cliffs Natural Resources for this time period. The average annual return for this time period of these five stocks was a decline of 6.146%, not including dividends. After counting dividends, the return gets back to around break-even. Past results, however, are not necessarily indicative of future returns.
This concludes this article. Hopefully this will give you some ideas on mid-cap stocks that pay a significant annual dividend or distribution.