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This is Part VIII of the dividend buster series; in Part VII we looked at 5 stocks with yields as high as 19.6%, two of which were (RSO) and (TNH). The following filters were applied in coming up with this list

1) A dividend of at least 8%.

2) A market cap of $1 billion or higher. Large cap stocks are generally more stable than their small cap counterparts.

3) A forward PE of below 18. NKA is the exception and its being used as an example of what dividend investors should avoid. Most of the companies listed below have a forward PE of less than 10.

4) A quarterly revenue growth rate of 25% or higher. NKA was the only exception and its being used an example of what dividend investors should avoid.

5) Operating cash flow (OCF) of $50 million or more. OCF is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt; the cash flow is what pays the bills. The only exception were BKCC and PER. BKCC was included because it is trading below book value and has managed to increase its net income very nicely over the past 3 years from negative 150 million to 71.2 million in 2010. PER was included because it is a new trust that offers an excellent distribution and because it is well positioned to continue offering handsome distributions for years to come.

6)

*= speculative play B= billion M= Million

ARMOUR Residential REIT Inc. (ARR)

ARMOUR Residential REIT Inc has a very handsome net interest spread of roughly 2.19 points; this the difference between what it pays for ARMOUR Residential REIT Inc short term loans and the money it earns through purchasing mortgages. The higher the spread, the larger the potential income is. Institutions hold a very small position in ARMOUR Residential REIT Inc and the short percentage of float is a huge 27.30%, which makes ARMOUR Residential REIT Inca very good candidate for a short squeeze. Gross profit has increased from $369,000 in 2009 to $7.8 million in 2010. Net income also surged nicely from negative $1.14 million in 2009 to $6.53 million in 2010.

ARMOUR Residential REIT Inc. has been named as a Top 10 Real Estate Investment Trust (REIT), according to Dividend Channel, which published its most recent ”DividendRank” report. The report noted that among REITs, ARR shares displayed both attractive valuation metrics and strong profitability metrics. For example, the recent ARR share price of $6.87 represents a price-to-book ratio of 1.0 and an annual dividend yield of 19.21% — by comparison, the average stock in Dividend Channel’s coverage universe yields 4.4% and trades at a price-to-book ratio of 1.9. The report also cited the strong monthly dividend history at ARMOUR Residential REIT Inc., and favorable long-term multi-year growth rates in key fundamental data points.

Positive developments

There were several Insider purchases for the month of Oct. Director Thomas Guba invested $275,000 in 50,000 shares at a cost of $5.50 per share. Director Daniel Staton purchased 150,000 shares at $6.29 a share, an investment of $943,000. The full list of insider transactions can be accessed here.

Potential negative

ARR is using higher amounts of leverage to get more interests from MREITS to offset falling interest rates and narrower spreads. The downside is that if rates start to rise, ARR would/could lag the more conservatively positioned MREITS.

  • ROE -8.19%
  • Quarterly earnings growth (yoy) N/A
  • Quarterly revenue growth rate 12,484.26%
  • Total debt 5.32 billion
  • 200 day moving average $7.26
  • Book value $6.78
  • Dividend rate $1.32
  • Payout ratio 135%
  • Consecutive dividend increases 0 years
  • Paying dividends since 2010
  • Total return last 3 years 11.73%

Energy Transfer Partners LP (ETP)

Energy Transfer Partners, L.P. engages in the natural gas midstream, and intrastate transportation and storage businesses in the United States. It has a quarterly revenue growth rate of (yoy) of 32% and a price to cash flow ratio of 8.01.

Cash and cash equivalents have been dropping for the past 3 years. In 2008 they stood at $91 million, in 2009 they stood at $68 million and in 2010 they came in at $49million. For the same time period, net income has also dropped from $866 million in 2008, to $617 million in 2010. Gross profit for 2008 and 2010 remained virtually unchanged at $.1.58 billion; gross profits experienced a slight increase in 2009 when they rose to $1.6 billion.

  • ROE 13.4
  • Quarterly earnings growth (yoy) -37.80%
  • Quarterly revenue growth rate 40%
  • Total debt $8B
  • 200 day moving average $ 45.12
  • Book value $23.75
  • Dividend yield 5 year Average 8.7
  • Dividend rate $ 3.58
  • Payout ratio 260%
  • Dividend growth rate 5 year average 7.56
  • Consecutive dividend increases 0 years
  • Paying dividends since 1996
  • Total return last 3 years 72%
  • Total return last 5 years 13%

Niska Gas Storage Partners LLC (NKA)

In this instance we are listing NKA to clearly illustrate that dividend investors should not only focus on the yield but dig deeper as we have repeatedly advocated in all our articles. Only speculators should consider opening a position in this play.

Niska Gas Storage is the largest independent owner and operator of natural gas storage in North America. It’s three facilities having a storage capacity of 148 billion cubic feet (Bcf) in Canada, 35 Bcf in northern California and13 Bcf in Oklahoma.

NKA has a levered free cash flow of $19.4 million, an expected five year PEG ratio of -5.41 and a price/sales ratio of 3.94. We would classify this as a speculative play. One factor that helps it somewhat is that it is trading significantly below book value; NKA is trading roughly $4.00 below book value. Another mitigating factor is the high yield it offers.

Insider action

On the 30th of August COO, Simon Duper, purchased 7000 shares for a total cost of $87,253.00. His cost per share was $12.64. Since then there have been a host of insider purchases; some of the most notable ones are listed below. Insiders do not purchase shares in their company on the open market unless the future looks bright.

J. Kulsky purchased 10,000 shares on Nov 14, at a cost of 9.71-9.79 a share

Simon Dupere purchased 7000 shares on Aug 30, at a cost of $12.34-12.57 a share. The full list of insider transactions can be accessed here.

Negative Developments

The glut of natural gas has had a significantly negative impact on prices. This has changed the outlook for NSK, instead of reporting a profit for the fiscal year; it expects to report a loss that could be as large as $13 million; though the range is anticipated to be in the $3-13 million ranges. NSK also stated that this glut of natural gas is going to have a strong impact on its earnings in the next 2 quarters. Given this uncertainty investors need to take into account that the dividend could be cut or even eliminated. Dividend payments amount to $94 million a year and the company only has less than $27 million on its balance sheet; the actual figure for cash and cash equivalents is $ 26.67 million.

It has already terminated distribution payments on subordinate units. Niska announced a cash distribution of $0.35 per common unit. The distribution will be payable on Thursday, November 17, 2011 to common unitholders of record at the close of business on Monday, November 14, 2011. This distribution represents the minimum quarterly distribution of $0.35 per unit, or $1.40 per common unit on an annualized basis, as set forth in Niska`s operating agreement. The distribution rate is unchanged from the preceding quarter. In light of the company's reduced earnings outlook, Niska's board of directors, including the representatives of the Carlyle/Riverstone Funds, has determined that it is prudent to suspend payment of distributions on Niska's subordinated units, all of which are owned by the Carlyle/Riverstone Funds. Based on the revised outlook discussed above, Niska expects to generate Cash Available for Distribution of approximately 0.9 to 1.1 times its annual common unit distribution.

NKA is selling some of its inventories in a bid to enhance its liquidity, but with the cut in distribution to subordinate units one has to wander how long will they be in a position to maintain payment to the regular units. It has less than $55 million in cash for distribution payments and so one has to wander whether they will be in a position to pay out distributions next year.

The stock has taken a beating and perhaps the bad news is already priced in. However, only speculators should consider opening up positions in this company.

  • Short percentage of float 2.3
  • Percentage held by institutions 17.4
  • ROE 6.23%
  • Quarterly earnings growth (yoy) -12%
  • Quarterly revenue growth rate -54%
  • Total debt 858M
  • 200 day moving average $ 13.75
  • Book value $13.31
  • Dividend rate $1.40
  • Payout ratio 250%
  • Dividend growth rate 3 year average N/A
  • Consecutive dividend increases 0 years
  • Paying dividends since 2010

Telecom Argentina S.A. (TEO)

Telecom Argentina has a very healthy levered free cash flow rate of $503 million and a quarterly revenue growth (yoy) rate of 26%. TEO reported a net profit of 602 million pesos ($136 million) for the 3rd quarter compared with a profit of 444 million pesos a year before. The net profit came in above analysts expectations which ranged from 577-618 million pesos. Gross profits have been steadily increasing for the past 3 years; in 2008 they stood at $1.4 billion, in 2009 they jumped to $2.57 billion and in 2010 they surged to $3.01 billion. Net income also surged during the same time period; in 2008 net income was $278 million, in 2009 it rose to $373 million and in 2010 it surged to $491 million. It has an impressive 3 year return of 166%. Motley fool rated TEO as one of the fastest growing telecom stocks with a 5 year-sales growth of 20.7%, 5-year EPS growth of 17.6% and a 5-year ROIC (return on investment capital) in the 11.44%-34% ranges.

  • ROE 35.9%
  • Quarterly earnings growth (yoy) 36%
  • Quarterly revenue growth rate 26%
  • Total debt 34.(M
  • 200 day moving average $22.10
  • Book value $8.48
  • Dividend rate $1.57
  • Payout ratio 70%
  • Dividend growth rate 3 year average 0
  • Consecutive dividend increases 0 years
  • Paying dividends since 1994
  • Total return last 3 years 166%
  • Total return last 5 years 19.8%

SandRidge Permian Trust. (PER)

PER next dividend payment was expected to be 66 cents but on the 28th of Oct it announced that it was going to pay 72 cents, an increase of 9%. This is a move in the right direction, especially as it’s a new trust.

PER will work 509 actively producing wells in the Permian Basin, Texas. It is also obligated to drill another 888 wells by the end of March 2015. Approximately 70% of it oil production is hedged is hedged till March 2015 at a price of $101a barrel. This could be construed as a positive factor because at least for the next 3 years it will not be affected by the volatile swing in oil prices. The downside is that if oil trades for an extended period above $101, it will not be in a position to reap most of these additional gains.

  • ROE N/A
  • Quarterly earnings growth (yoy) 42%
  • Quarterly revenue growth rate 41%
  • Total debt 0.00
  • 200 day moving average $18.51
  • Dividend rate $1.57
  • Payout ratio 70%
  • Dividend growth rate 3 year average 0
  • Consecutive dividend increases 0 years
  • Paying dividends since 1994
  • Total return last 3 years 206%
  • Total return last 5 years 23%

Two Harbors Investment Corp (TWO)

Two Harbors Investment Corphas an enterprise value of $6.48 billion and price/sales value of 10.04. TWO has an impressive Quarterly earnings growth (yoy) rate of 452.70%. Cash flow from operating activities has improved significantly over the past 3 years; in 2009 the figure was negative -$11.36 million, but in 2010 it surged to $33.11 million. Net Income rose from negative $8.7 million in 2009 to$ 37.7 million in 2010

Positive factors

In total insiders have been actively purchasing shares since Feb.; from August-November 2011 they purchased over 120,000 shares at a cost of $.8.95-$9.70. The most notable purchases are:

Director Steven Kuhn purchased 45,000 shares in August at $8.98-$9.74 a share for a total investment of roughly $400,000.

Director Thomas Siering purchased 20,000 shares in August at $8.98-$9.13 a share for a total investment of $181,000. The full list of insider purchases can be accessed here .

  • ROE 11.94%
  • Quarterly earnings growth (yoy) 452.70%
  • Quarterly revenue growth rate 530%
  • Total debt $7.35 billion
  • 200 day moving average $9.71
  • Book value $9.30
  • Dividend rate $1.60
  • Payout ratio 104%
  • Dividend growth rate 3 year average 0.00%
  • Consecutive dividend increases 0 years
  • Paying dividends since 2009
  • Total return last 3 years 340%
  • Total return last 5 years N/A

BlackRock Kelso Capital Corporation (BKCC)

BlackRock Kelso Capital Corporation is a private equity firm specializing in investments in middle market companies. BKCC has a negative Operating and levered cash flow rate, but it has managed to increase its net income nicely over the past 3 years. In 2008 net income was negative$150 million, in 2009 it rose to $67 million and in 2010 it stood at $71.5 million. Blackrock Kelso Capital Corporation has been named as a Top 10 dividend-paying financial stock, according to Dividend Channel, which published its most recent ”DividendRank” report. The report noted that among shares of financial companies, BKCC displayed both attractive valuation metrics and strong profitability metrics. For example, the recent BKCC share price of $8.51 represents a price-to-book ratio of 0.9 and an annual dividend yield of 12.22% — by comparison, the average stock in Dividend Channel’s coverage universe yields 4.0% and trades at a price-to-book ratio of 1.9. The report also cited the strong quarterly dividend history at Blackrock Kelso Capital Corporation, and favorable long-term multi-year growth rates in key fundamental data points.

BKCC upgrade/downgrade history can be accessed from here.

Positive developments

BLACKROCK KELSO CAPITAL ADVISORS LLC purchased 200,000 shares in March at $10 per share for a total cost of $2 million dollars.

Director B. Harris purchased 9000 shares in March at$ 9.64 a share for a total investment of $86.760. In May he purchased another 4000 shares for a total investment of roughly $40,000.

  • ROE 5.08%
  • Quarterly earnings growth (yoy) -20%
  • Quarterly revenue growth rate 34%
  • Total debt $317 million
  • 200 day moving average $8.60
  • Book value $9.75
  • Dividend yield 5 year Average N/A
  • Dividend rate $1.10
  • Payout ratio 158%
  • Dividend growth rate 5 year average 0.00%
  • Consecutive dividend increases 1 years
  • Paying dividends since 2007
  • Total return last 3 years 28%
  • Total return last 5 years N/A

Disclaimer: Do not treat this as a buying list. It is very important that you check the finer details in each of the mentioned plays before investing any capital in them. Some investors are happy with taking enormous amounts of risks, while others are bothered by the slightest degree risk; it is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.

Source: 7 Dividend Busters With Yields As High As 23%: Part VIII