4 Dividend Monsters To Buy, 1 To Avoid

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 |  Includes: CTL, FTR, NLY, NYCB, WIN
by: Insider Monkey

Interest rates are ridiculously low. Long-term Treasuries aren’t alternatives for serious long-term conservative investors. The investment community is in search of quality dividend yield. In this low interest rate environment, investors have a great appetite for investing in companies with solid balance sheets and consistent dividend payout ratios.

For the same reason, we have shortlisted stocks that have high current as well as forecast dividend yield, a good payout ratio with evidence of consistent dividend payments and a healthy balance sheet. We believe these should be given overweight positions in ones portfolio.

Annaly Capital Managemen (NYSE:NLY) is the largest listed mortgage REIT. Since going public in 1997, Annaly has paid 57 consecutive quarterly dividends, totaling $24.85. Annaly is one the few finance companies emerging from the financial crisis with an unchanged business model. The management has a proven record for timing the markets, raising and lowering the company’s risk profile at appropriate times. As a result, the company has grown book value 18 of the past 25 quarters. The company has outperformed the S&P 500 for 8 out of the past 10 years.

Last year’s dividend yield was 16.32% and next year’s street forecasts are roughly 15%, one of the highest forecast dividend yield in the market. The ex-dividend date is expected to be Dec. 28th, 2011 as the 4Q 2011 dividend was $0.57 per share. The earnings per share for NLY is $1.36. The street consensus on the forecast payout ratio is 102% in 2012 and 99% in 2013.

Due to the fact that NLY is in the mortgage REIT business, their debt to assets stands at 77%. However, this is usually the industry norm. The financial metrics of NLY turn out favorably as forecast ROE is 16.00% and 14.40% for 2012 and 2013, respectively. NLY is also outperforming the industry in terms of operating margin: 84.07% vs. 48.92%. NLY also has a standout valuation metric being forecast EV/EBITDA ratio at 19.8x and 21.2x for 2012 and 2013, respectively.

On Dec. 19th NLY closed $16.32 (down -0.31%) approximately halfway of the 52 week range of $14.05 - $18.79. The market cap of the stock is $15.83 billion and the current trading P/E ratio stands at 8.51x, whereas the forecast P/E multiple for 2012 and 2013 is 6.7x and 7.0x respectively. The street consensus is BUY with a target price of $18.00. Bill Miller’s Legg Mason Capital Management had more than $100 million invested in NLY.

Frontier Communications (NASDAQ:FTR) is one of the largest providers of telecommunications services in the US, mainly to rural and small communities. It has been over 5 quarters since the acquisition of Verizon’s (NYSE:VZ) landlines, however the revenues have yet to turnaround. This has caused many in the street to downgrade FTR from overweight to neutral. The street, though has been keen to mention FTR’s consistent dividend yield, stretching to a high of 17.54% last year.

Next year’s street forecasts are roughly 15%, one of the highest forecast dividend yield in the market. The ex-dividend date is Mar. 7th, 2012. The street consensus on the forecast payout ratio is 320% in 2012 and 289% in 2013.

The debt to assets for FTR is at 47%, which is on the high side and has put the street on alert with regards to the company’s financial health. The financial metrics of FTR are not the strongest as forecast ROE is 4.58% and 7.28% for 2012 and 2013, respectively. This is largely due to their earnings growth of -8.00% vs. an industry average of 8.50%. The earnings have suffered from reduced residential spending in the US over the last year. Hence, the EPS of FTR stands at $0.16 vs. an industry average of $0.49.

On Dec. 19th FTR closed $4.82 (unchanged) at the low end of the 52 week range of $4.79 - $9.84. The market cap of the stock is $4.80 billion and the current trading P/E ratio stands at 31.93x, whereas the forecast P/E multiple for 2012 and 2013 is 21.2x and 19.2x respectively. The street consensus is to HOLD FTR as price target has dropped from as high as $10.00 to $6.00.

Windstream Communications (NASDAQ:WIN) is a local telephone provider. With headquarters in Little Rock, Ark., Windstream is an S&P 500 communications and technology company with operations in 29 states and the District of Columbia and about $4 billion in annual revenues. Despite a higher leverage, the sell side is happy with WIN’s prospects as revenues have shown a positive growth and in turn CAPEX continues to track high as the company is looking to maximize its fiber to the cell opportunity. YTD CAPEX is $509m, and management expects 2011 CAPEX to exceed the high end of its 2011 guidance of $630m.

Last year’s dividend yield was 8.67% and next year’s street forecasts are roughly the same. The ex-dividend date is expected to be Mar. 28th, 2012. The street consensus on the forecast payout ratio is 131% in 2012 and 123% in 2013.

The debt to assets for WIN is at 64%, which is on the high side but analysts remain positive on this stock. The financial metrics of WIN are considerably stronger than FTR as forecast ROE is 43.82% and 54.43% for 2012 and 2013, respectively. This is largely due to their earnings growth of 6.00%. The EPS of WIN stands at $0.51.

On Dec. 19h WIN closed $11.72 and is at the 25th percentile of the 52 week range of $10.76 - $14.27. The market cap of the stock is $6.08 billion and the current trading P/E ratio stands at 22.93x, whereas the forecast P/E multiple for 2012 and 2013 is 15.1x and 14.1x respectively. The street consensus is to BUY. Artis Capital Management had $30 million invested in WIN at the end of September.

New York Community Bancorp Inc. (NYB) is currently the 21st largest bank holding company in the nation and a leading producer of multi-family loans in New York City, with an emphasis on apartment buildings that feature below-market rents. The Company operates two bank subsidiaries—New York Community Bank, a thrift, with 241 locations in Metro New York, New Jersey, Ohio, Florida, and Arizona; and New York Commercial Bank, with 34 branches in New York City, Westchester County, and Long Island, including 17 branches that operate under the name Atlantic Bank. NYB posted double digit growth on its multi family loan for the first time last quarter over the last 3 years.

Last year’s dividend yield was 8.37% and next year’s street forecasts are roughly the same. The ex-dividend date is forecast to be Feb. 8th, 2012. The street consensus on the forecast payout ratio is 91% for the next 2 years. The forecast ROE is 8.61% and 8.68% for 2012 and 2013, respectively. The EPS of NYB stands at $1.16.

On Dec. 19th NYB closed at $11.92 and is at the low end of the 52 week range of $11.13 - $19.33. The market cap of the stock is $5.23 billion and the current trading P/E ratio stands at 10.34x. The street consensus is divided between BUY and HOLD, as there is a split between the expected earning results and their loan growth. The street has an average price target of $13.50 for NYB.

CenturyLink (NYSE:CTL) is a global broadband and telecommunications company headquartered in Monroe, Louisiana. It’s a member of the S&P 500 index. The company operates as a local exchange carrier and Internet service provider in U.S. markets and is the third-largest local exchange carrier in the U.S. in terms of lines served. It also provides long distance service. The improving operating trends in the Qwest territories show that CenturyLink’s local go-to market approach is generating traction in the more urban regions as well, and operating trends continue to improve over time.

Last year’s dividend yield was 8.18% and next year’s street forecasts are roughly the same. The ex-dividend date is Feb. 17th, 2012. The Wall Street consensus on the forecast payout ratio is 109% in 2012 and 110% in 2013. The debt to assets for CTL is at 39%, which is on the low side compared to the industry. The operations of the company have moved in the right direction in 2011 and that is highlighted in their earnings. The forecast ROE is 7.98% and 7.74% for 2012 and 2013, respectively. This is largely due to their earnings growth of 162.90% vs. an industry average of 8.50%.

On Dec. 19th CTL closed $35.41 and is at the 25th percentile of the 52 week range of $31.16 - $46.87. The market cap of the stock is $22.21 billion and the current trading P/E ratio stands at 20.22x, whereas the forecast P/E multiple for 2012 and 2013 is 13.3x and 13.5x respectively. The street consensus is to BUY with an average price target of $45.00. Adage Capital had $83 million in CTL at the end of September.

Disclosure: I am long FTR, CTL.