Seeking Alpha
Profile| Send Message|
( followers)

Economic uncertainty and the extreme low-rate environment continue to drive more and more investors to seek investments that offer higher yields. Investors should pay attention to the finer details before opening up a position in any stock, and their decision should definitely not be based on yield alone. Investors would be wise to pay attention to some of the following metrics before deploying any of their capital.

Levered free cash flow is the amount of cash available to stock holders after interest payments on debt are made. A company with a small amount of debt will only have to spend a modest amount of money on interest payments, which in turn means that there is more money to send to shareholders in the form of dividends and vice versa. Individuals searching for companies that carry lower levels of risk might be interested in our latest article Dividend Aristocrats With Great Yields Part II.

Enterprise value is a combination of the market cap, debt, minority interests, preferred shares less total cash and cash equivalents. This provides a better picture because it is a more accurate representation of a company's value contrary to simply looking at the market cap.

Operating cash flow 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 payout ratio tells us what portion of the profit is being returned to investors. A payout ratio over 100% indicates that the company is paying out more money to shareholders than it is making; this situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, it can keep this going on for a while. As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for some time. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever. If your tolerance for risk is low, look for similar companies with the same or higher yields, but with lower payout ratios.

Our favourite play is Companhia Siderrgica Nacional (NYSE:SID). It has a five-year dividend growth rate of 12.36%, a quarterly earnings growth rate of 52%, a quarterly revenue growth rate of 7.4%, a five-year dividend average of 6.7%, and a total rate of return for the last three years of 39%. Net income for the last three years is as follows; in 2008 it was $2.65 billion, in 2009 it dropped to 1.5 billion and in 2010 it was virtually unchanged from $1.51 billion. Gross profits for the same time period are as follows; in 2008 they came in at $3.58 billion, in 2009 the gross profit was $2.26 billion and in 2010, it jumped up to $4.07 billion.

Two other plays of interest are Transportadora de Gas del Sur (NYSE:TGS) and Duke Energy Corp (NYSE:DUK) with dividend yields of 49.2% and 4.6% respectively.

TGS sports a whopping 49.6% yield; this is not a typo. It recently made a payment of 1.47 per share. Investors should, however, understand that such an extreme yield is not sustainable; it might be able to maintain a higher-than-normal yield but yields of 49% are simply not sustainable in the long run. On the bright side, it does have a positive levered cash flow rate of $51.3 million and total cash from operating activities was more than enough to make the dividend payments for the past three years (2008, 2009 and 2010). It's attempting to put in a base, and as long as it does not close below 2.70 on weekly basis the outlook will remain neutral. A weekly close above 3.50 will be a bullish move and should result in a test of the 4.50 ranges.

On the negative side, total cash from operating activities has been decreasing; in 2008, it came in at $196 million, in 2009 it was $134 million and in 2010 it dropped all the way down to $80.6 million. Dividend payments for the past three years are as follows; in 2008, they amounted to $9.2 million, in 2009 dividend payments were $7.8 million and it 2010, they were $7.6 million. Net income has also been dropping; in 2008 it came in at $60 million, in 2009 it was $46.9 million and in 2010, it was $25.7 million. Only individuals willing to take on a bit of extra risk should consider this play.

DUK has an enterprise value of $ 46 Billion, a quarterly revenue growth rate of 0.5%, a ROE of 8.21%, a five-year dividend growth rate of 0.98%, a total three-year return of 60.76%, a payout ratio of 71%, and 5-year dividend average of 5.2% and has consecutively increased its dividends for four years in a row. It has an operating cash flow of $3.8 billion and a levered free cash flow rate of -$1.1 billion. Net income for the past three years is as follows; in 2008, it was $1.36 billion, in 2009 it dropped to $1.07 billion and in 2010, it rose slightly to $1.32 billion. For 2011, net income so far is $1.4 billion; total net income could soar to the $1.8-$2.00 billion ranges.

Duke Energy Corp's stock gained roughly 25% last year, and it increased its dividend by 2%. It also announced its intention to merge with Progress Energy. If this deal is approved it would make it the nation's largest utility.

Stock

Dividend

Market Cap

Forward

PE

EBITDA

Quarterly Revenue growth

Beta

Revenue

Cash flow

CLMT

9.9%

1.09B

9.37

136.8M

30%

0.37

2.71B

45.8M

SID

7.5%

12.58B

4.2

3.40B

7.4%

1.59

8.52B

1.55B

TEF

12.6%

74B

7.5

28.55B

3.6%

1.15

83.76B

6.4B

VIP

15.6%

15.98B

7.7

7.19B

115.7%

---

17.18B

5.00B

CS

6.10

26.8B

7

27B

0.2%

1.53

30.7B

25.17B

Calumet Specialty Products Partners LP (NASDAQ:CLMT)

CLMT has an enterprise value of $1.73 Billion, a quarterly earning's growth rate of -7.60, a ROE of 5.32, a five-year dividend growth rate of 13.6%, a total three-year return of 198%, a EPS of 0.64, sales per share of 52.65, cash flow per share of 1.89, price/sales of 0.36, and a price/cash flow of 10.00 and price/book of 1.77.

Net income for the past three years is as follows; in 2008, it was $44 Million, in 2009 it rose to $61 million and in 2010, it dropped significantly to $16 million. For 2011, it stands at $16 million, and if it can match last quarter's net income, then the total net income for 2011 could soar well past the $35 million mark. CLMT also raised its dividend from $0.4950 to $0.5000.

Key ratios

  • Price to sale 0.39
  • Price to tangible book 2.24
  • Price to cash flow 10.90
  • Price to free cash flow -2.10
  • 5-year sales growth 8.48%
  • Inventory turnover 8.00
  • Asset turnover 2.00

  • ROE 5.32%
  • Return on assets 3.4%
  • Total debt $ 644 million
  • 200-day moving average $ 19.58
  • Book value -$10.35
  • Dividend yield 5 year Average 11.7%
  • Dividend rate $194
  • Payout ratio 251%
  • Dividend growth rate 5 year average 13.66%
  • Consecutive dividend increases 1 year
  • Paying dividends since 2006
  • Total return last 3 years 198%
  • Total return last 5 years -24%

Companhia Siderurgica Nacional (SID)

SID has enterprise value of $19.48billion, a five-year dividend growth rate of 12.36%, a quarterly earnings growth rate of 52%, a quarterly revenue growth rate of 7.4%, a five-year dividend average of 6.7%, a total rate of return for the last three years of 39%, a dividend rate of $0.64 and has been paying dividends since1994. It also has an EPS of 2.21, sales per share of 7.74, cash flow per share of 1.69 and sports a very low PE of 4.2.

Net income for the last three years is as follows; in 2008 it was $2.65 billion, in 2009 it dropped to 1.5 billion and in 2010 it was virtually unchanged from $1.51 billion. Gross profits for the same time period are as follows; in 2008 they came in at $3.58 billion, in 2009 the gross profit was $2.26 billion and in 2010, it jumped up to $4.07 billion.

Key ratios

  1. Price to tangible book 2.75
  • Price to cash flow 4.70
  • Price to free cash flow -6.70
  • 5-year sales growth 19.71%
  • Inventory turnover 2.90
  • Asset turnover 0.50

  • ROE 40.16%
  • Return on assets 8.26%
  • Total debt 14.94B
  • 200-day moving average $9.36
  • Book value $3.08
  • Dividend yield 5-year Average 6.70
  • Dividend rate $0.64
  • Dividend growth rate 5-year average 12.36%
  • Consecutive dividend increases 0 years
  • Paying dividends since 1994
  • Total return last 3 years 39%
  • Total return last 5 years 107%

Telefonica, S.A. (NYSE:TEF)

TEF has an enterprise value of $145 Billion, a quarterly revenue growth rate of 3.6%, a ROE of 15.11%, a five-year dividend growth rate of 29.28%, a total three-year return of -1.31%, and a five-year dividend average of 6.4%. It has a free cash flow rate of $4.2 billion.

Net income for the past three years is as follows; in 2008, it was $11 billion, in 2009 it remained virtually unchanged at $11.1 billion and in 2010, it rose to $13.6 billion.

GROWTH

5-Year
Growth

3-Year
Growth

Revenue

-2.88

-12.91

Income

-12.54

-31.13

Dividend

21.66

9.90

Capital Spending

4.08

32.92

R&D

0.00

0.00

Key ratios

  • Price to sale 1.78
  • Price to tangible book 1.69
  • Price to cash flow 8.60
  • Price to free cash flow -47.40
  • 5-year sales growth -2.88%
  • Inventory turnover 8.40
  • Asset turnover 0.30

  • ROE 15.11%
  • Return on assets 6.13%
  • 200-day moving average $ 20.04
  • Total debt $ 79.15B
  • Book value $5.15
  • Dividend yield 5 year Average 6.40%
  • Dividend rate $2.13
  • Payout ratio 283%
  • Dividend growth rate 5-year average 29.28%
  • Consecutive dividend increases 8 years
  • Paying dividends since 1990
  • Total return last 3 years -1.31%
  • Total return last 5 years 9.32

VimpelCom Ltd. (NASDAQ:VIP)

VIP has an enterprise value of $38.4Billion, a quarterly revenue growth rate of 115%, a ROE of 9.75, an EPS of 1.03, sales per share of 10.62, and cash flow per share of 4.00. VimpelCom Ltd has a price/sales ratio of 0.94, a price/book of 1.06, and a price/cash flow of 2.50. It also sports and EPS of 1.03, sales per share of 10.62 and cash flow per share of 4.00.

Net income for the past two years is as follows; in 2009, it was $1.1 billion and in 2010, it rose to $1.6 billion. It also has strong levered free cash flow rate of $1.5 billion.

Potential warnings

Quarterly earnings growth is -79%, and it has only been paying dividends for the past two years. On the bright side, it does have a very strong quarterly revenue growth of 115% and a healthy levered free cash flow rate of $1.5 billion.

Key ratios

  1. Price to sale 0.94
  • Price to tangible book -1.26
  • Price to cash flow 2.50
  • Price to free cash flow -30
  • 5-year sales growth N/A
  • Inventory turnover 19.00
  • Asset turnover 0.40

  • ROE 9.75%
  • Return on assets 5.5%
  • 200-day moving average $ 10.98
  • Total debt $ 26B
  • Book value $9.41
  • Dividend yield 5 year Average N/A
  • Dividend rate $0.84
  • Payout ratio 61%
  • Dividend growth rate 5-year average 0.00%
  • Consecutive dividend increases 1 years
  • Paying dividends since 2010
  • Total return last 3 years N/A
  • Total return last 5 years N/A

Credit Suisse Group (NYSE:CS)

CS has an enterprise value of- $168 Billion, a quarterly earning's growth rate of 12.2%, a quarterly revenue growth rate of 0.2%, a ROE of 24%, a five-year dividend growth rate of -7.8%, a total three-year return of -11%, and five-year dividend average of 4.6%. It is trading roughly $6 below book value and has a free cash flow rate of $23billion.

Net income for the past three years is as follows; in 2008, it was $5.6 billion, in 2009 it rose to $5.6 billion and in 2010, it dropped to $5.4 billion.

Potential warnings

Net income has started to drop again, and the five-year growth rate of revenue is -6.6%.

Key ratios

  • Price to sale 0.50
  • Price to tangible book 0.98
  • Price to cash flow 5.00
  • Price to free cash flow 1.50
  • 5-year sales growth 6.60
  • Inventory turnover N/A
  • Asset turnover 0.00

  • ROE 24.02%
  • Return on assets 11.8%
  • 200-day moving average $ 28.23
  • Total debt $ 474B
  • Book value $29.25
  • Dividend yield 5-year Average 4.6%
  • Dividend rate $1.48
  • Payout ratio 53%
  • Dividend growth rate 5-year average -7.8%
  • Consecutive dividend increases 0 years
  • Total return last 3 years -11%
  • Total return last 5 years -56%

Conclusion

Astute dividend investors wait for strong pull backs and when fear is high to commit large sums of money into the market. This strategy requires patience, but the payoff is very high. Our analysis reveals that the markets are due for another strong pull back. We believe that this pull back will occur in two stages. The first one will be mediocre in nature and should start around the 18th-20th of this month. The second and stronger pull back/correction could wait until March before it starts to unfold. Long-term dividend players would be best served by waiting for a strong correction before committing large sums of money to this market.

All graphs were sourced from smartmoney.com



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This list of stocks is meant to serve as a starting point. Please 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 Stocks With Grand Yields As High As 49.2%