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Novice investors should pay attention to the following metrics, as they could prove to be useful in your selection process.

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.

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.

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.

Investors should pay attention to the following risks associated with trusts:

  • Cash flow is dependent on the price of the underlying commodity and production levels, and thus could be subject to swings. If the swings are wide, the dividends paid out could vary widely from year to year.
  • While investing in royalty trusts can yield steady and hefty returns, there is one potential drawback: depletion. These trusts own royalties on a finite amount of resources, and once those resources are gone; the trust is also gone. Investors need to understand that the distributions will eventually decline and disappear. It is essential that you do your due diligence before opening a position in the trusts that are discussed in this article.

Payout ratios are not that important when it comes to MLPs, for the following reason:

  • MLPs are required by law to pay a majority of their cash flow as dividends. Payout ratios are calculated by dividing the dividend rate by the net income per share, and this is why the payout ratio for MLPs is often higher than 100%. The more important ratio to focus on as far as MLPS are concerned is the cash flow per unit. If one focuses on the cash flow per unit, one will see that in most cases, it exceeds the distribution declared per unit.

Our favourite play on this list is Terra Nitrogen (NYSE:TNH). It has an ROE of 100%, a quarterly revenue growth rate of 49.5%, quarterly earnings growth rate of 180%, a very health levered free cash flow rate of $228 million, a five-year dividend growth rate of 97%, a five dividend average of 8.10%, a total 5-year return of 600%, and it has been paying dividends since 1997. The dividend was increased from $3.75 to $3.96.

Two other plays of interest are Kinder Morgan Energy Partners LP (NYSE:KMP) and Southern Copper Corp (NYSE:SCCO), with yields of 5.6% and 9.00 % respectively.

KMP has enterprise value of $41.23 billion, a quarterly revenue growth of 6.6%, a ROE of 15.97%, a five-year dividend growth rate of 7.31%, a total return of 117% for the past three years, and has been paying dividends since1992. It has a levered free cash flow rate of $265 million. Net income for the past three years is as follows: For 2008, it was $1.3 billion, in 2009 it dropped to $1.26 billion and in 2010 it rose to $ 1.31 billion. Net income for 2011 so far stands at $772 million. Out of a possible five stars, we would assign KMP four.

SCCO has an enterprise value of $27.34 billion, a quarterly revenue growth rate of 38%, an impressive quarterly earnings growth rate of 81% a ROE of 57.3%, a very impressive five-year dividend growth rate of 53%, a total three-year return of 134%, and has been paying dividends since 1996. It has a strong levered free cash flow rate of $1.53 billion. Net income for the past three years is as follows: In 2008, it came in at $1.4 billion, in 2009 it dropped to $929 million and in 2010, it surged to $1.54 billion. For 2011, it stands at $1.8 billion. SCCO has a payout ratio of 81%.

Stock

Dividend

Market Cap

Forward

PE

EBITDA

Quarterly Revenue growth

Beta

Revenue

Cash flow

TNH

8.70%

3.42B

N/A

459.10M

49.50%

0.30

740.80M

445.60M

WHX

16.60 %

244.4M

6.83

N/A

10.70%

0.53

39.97M

N/A

TGS

49%

476M

3.4

134.74M

-0.90%

0.83

388.14M

113.84M

TEF

12.6%

74B

7.5

28.55B

3.6%

1.15

83.76B

6.4B

EPD

5.4%

40.15B

19

3.68B

40.4%

0.53

42.3B

3.08B

M=Million, B= billion.

Terra Nitrogen Co., L.P. (TNH)

It has an ROE of 100%, a quarterly revenue growth rate of 49.5%, quarterly earnings growth rate of 180%, a very health levered free cash flow rate of $228 million, a five-year dividend growth rate of 97%, a five dividend average of 8.10%, a total 5-year return of 600%, and it has been paying dividends since 1997. The dividend was increased from $3.75 to $3.96.

Net income for the past three years is as follows: For 2008, it was $422.3 million, in 2009 it dropped to $122.3 million and in 2010 it rose to $201.6 million. Net income for 2011 so far stands at $378 million, and could top the $500 million mark.

Something to keep in mind

High crop prices push farmers to spend more money on fertilizers to enhance crop yields, and vice versa. If demand is high, TNH can charge more for its products, but if crop prices start to fall, then the opposite could occur. Long-term crop prices are expected to trend higher; the charts are calling for significantly higher prices in the years to come. However, in the intermediate time frames, we could witness further consolidation.

On the bright side, though its nitrogen-based fertilizers cost less to produce then the mined potash and phosphates producer by firms such as Potash Corp (NYSE:POT) and Mosaic (NYSE:MOS). Terra's nitrogen's dividend payments are also almost 10 times higher than POT and MOS so even if prices remain stagnant investors will still be rewarded with above-average dividends. Furthermore, it has a very strong ROE, a very healthy levered free cash flow rate and a very strong quarterly revenue growth.

Key Ratios

  1. Price to sale 4.56
  2. Price to tangible book 12.55
  3. Price to cash flow 8.2
  4. Price to free cash flow 43.9
  5. 5 year sales growth 6.02
  6. Inventory turnover 11.6
  7. Asset turnover 2.7
  8. ROE 197.82%

  1. Return on assets 100.93%
  2. 200 day moving average 161.67
  3. Total debt 0
  4. Book value 12.72
  5. Dividend yield 5 year Average 8.1 %
  6. Dividend rate $ 13.91
  7. Payout ratio 98%
  8. Dividend growth rate 5 year average 204 %
  9. Consecutive dividend increases 1 years
  10. Paying dividends since 1997
  11. Total return last 3 years 107.36%
  12. Total return last 5 years 646.41%

Whiting USA Trust I (NYSE:WHX)

Net income for the past three years is as follows: For 2008, it was $56.9 million, in 2009 it dropped to $42.6 million and in 2010 it remained unchanged at $42.7 million. Net income for 2011 so far stands at $35 million.

Potential warnings

The trust will cease operations once it reaches its target of 9.11 million barrels of oil equivalent; in the case of WHX, this amounts to 8.20 MMBOE as it has the right to receive 90% of net proceeds. The trust has roughly produced 4.00 MMBOE to date. Investors need to keep this in mind before opening a position in this trust. Only investors with shorter time spans and those willing to take on a bit of extra risk should consider this play.

Key Ratios

  1. Price to sale 6.1
  2. Price to tangible book 4.83
  3. Price to cash flow 8.9
  4. Price to free cash flow -12.8
  5. 5 year sales growth N/A
  6. Inventory turnover N/A
  7. Asset turnover 0.7

  1. ROE 66.82%
  2. Return on assets 41.76%
  3. 200 day moving average 17.02
  4. Total debt 0
  5. Book value 3.64
  6. Dividend yield 5 year Average 0%
  7. Dividend rate $2.95
  8. Payout ratio 104%
  9. Dividend growth rate 5 year average 0%
  10. Consecutive dividend increases 2 years
  11. Paying dividends since Last 12 months payments: 4
  12. Total return last 3 years 116.68%
  13. Total return last 5 years N/A

Transportadora de Gas Del Sur S.A. (NYSE:TGS)

Net income for the past three years is as follows: For 2008, it was $60.4 million, in 2009 it dropped to $46.9 million and in 2010 it dropped even further to $25.7 million. It is selling roughly 60 cents below book value.

TGS sports a whopping 49.6% yield -- this is not a typo; it recently made a payment of 1.47 per share. Investors need to understand that such a lofty 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.

Potential warnings

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 $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. 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).

Key Ratios

  1. Price to sale 2.00
  2. Price to tangible book 0.82
  3. Price to cash flow 6.20
  4. Price to free cash flow -3.10
  5. 5 year sales growth 2.41
  6. Inventory turnover N/A
  7. Asset turnover 0.00
  8. ROE 4.92%

  1. Return on assets 4.36%
  2. 200 day moving average 3.27
  3. Total debt 375M
  4. Book value 3.57
  5. Dividend yield 5 year Average N/A
  6. Dividend rate $ 1.47
  7. Payout ratio 12%
  8. Dividend growth rate 5 year average N/A
  9. Consecutive dividend increases 1 years
  10. Paying dividends since 1994
  11. Total return last 3 years 120%
  12. Total return last 5 years -37%

TGS is attempting to put in a base, and as long as it does not close below 2.70 on a 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.

Telefonica, S.A. (NYSE:TEF)

TEF has an enterprise value of $148 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.

Key ratios

  1. Price to sale 1.78
  2. Price to tangible book 1.69
  3. Price to cash flow 8.60
  4. Price to free cash flow -47.40
  5. 5 year sales growth -2.88%
  6. Inventory turnover 8.40
  7. Asset turnover 0.30

  1. ROE 15.11%
  2. Return on assets 6.13%
  3. 200 day moving average $ 19.89
  4. Total debt $ 79.15B
  5. Book value $5.08
  6. Dividend yield 5 year Average 6.40%
  7. Dividend rate $2.13
  8. Payout ratio 283%
  9. Dividend growth rate 5 year average 29.28%
  10. Consecutive dividend increases 8 years
  11. Paying dividends since 1990
  12. Total return last 3 years -1.31%
  13. Total return last 5 years 9.32

Enterprise Products Partners LP (NYSE:EPD)

It has enterprise value of $56.2 billion, a quarterly revenue growth of 40.40%, a ROE of 14.55%, a five-year dividend growth rate of 6.03%, a total return of 144% for the past three years, and has been paying dividends since 1998. It has a levered free cash flow rate of -$1.01 billion. Out of a possible five stars, we would assign EPD four. The dividend was raised from $0.6050 to $0.6125.

Positive developments

Enterprise Products Partners LP and Genesis Energy LP have stated that they will build a crude oil pipeline in the Gulf of Mexico. These two companies have made transportation agreements with six crude oil producers. The pipeline is will be roughly 149 miles long, and is expected to transport 115,000 barrels of oil a day. In the 50/50 joint venture, the pipeline is expected to be operational sometime in 2014.

Key ratios

  1. Price to sales 0.97
  2. Price to tangible book 5.37
  3. Price to cash flow 26.40
  4. Price to free cash flow - 32.40
  5. 5 year sales growth 23.27%
  6. Inventory turnover 29.80
  7. Asset turnover 1.40

  1. ROE 14.55%
  2. Return on assets 5.23%
  3. Total debt 15.4B
  4. 200 day moving average $43.24
  5. Book value $13.14
  6. Dividend yield 5 year Average 6.5%
  7. Dividend rate $2.40
  8. Payout ratio 190%
  9. Dividend growth rate 5 year average 6.03%
  10. Consecutive dividend increases 12 years
  11. Paying dividends since 1998
  12. Total return last 3 years 144%
  13. Total return last 5 years 102%

Conclusion

We have been stating for quite some time now that the SPX was destined to test the 1300-1325 ranges. Yesterday, the SPX traded as high as 1296, which was just 4 points away from the lower end of suggested targets. Bear in mind that we made these predictions when the SPX was trading significantly lower. Our subscribers have locked in lofty gains for the past 12 months as we have virtually predicted almost every top and bottom.

One of the biggest wins for us was when we advised our subscribers to open up short positions before the market started to tank in July of 2011 and then to subsequently open up long positions in October. Below are excerpts from articles that were recently published on seeking alpha.

On Dec. 16, we made the following comments:

On a short-term basis, the Dow has put in a bottom and is getting ready to challenge the 12,000 ranges again. However, there is a chance that the recent lows could be tested before the rally gathers steam. Going out a little further, the cycles suggest that the Dow should be able to rally until early next year and there is a fairly good chance that the Dow could trade to the 12,800 range and the and the SPX could trade to the 1305-1330 plus range with the possibility of mounting an intra-day spike to the 1340 range. The dollar is overbought and has generated a few sell signals on the hourly time frames, so a pullback here would help drive commodities and the general market higher.

In a recent article written on Dec. 26 and published on Dec. 27, we made the following comments:

Going forward, we think that the markets could put in a short term top around the 27-29th of this month. The pullback should provide traders with a good opportunity to open up long positions.

On the Jan. 3, we made the following statement:

While we still feel that the SPX could trade to the 1300-1320 ranges, our advice to long term traders would be to sit on the sidelines waiting for opportune moments to present themselves before deploying large sums of money into this market. Fixed income investors can hedge themselves to some degree by selling covered calls. A more aggressive option would be to purchase long term puts to hedge your portfolio against a potentially strong sell-off.

Long-term investors would be best served by waiting for a strong pull back before committing new money to this market. Investors can earn an extra stream of income by selling covered calls, and if you are bullish on the stock another stream of income can be opened by selling naked puts.

Source: 7 Dividend Plays With Yields As High As 49%

Additional disclosure: This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. 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. All charts were sourced from dividata.com