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

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.

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 looking for stocks that are less volatile in nature and have a stellar dividend histories might find the following article to be of interest, Dividend Aristocrats With Great Yields Part II.

The payout ratio tells us what portion of the profit is being returned to investors. A pay out ratio over 100% indicates that the company is paying out more money to shareholders then they are making; this situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, they 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 sometime.

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.

Investors should be aware of the following facts when it comes to trusts:

  1. 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.
  2. 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.

Important facts investors should be aware in regards to investing in MLPs:

  1. Payout ratios are not that important when it comes to MLPs. MLPs are required by law to pay a majority of their cash flow as distributions. 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.
  2. MLPs are not taxed like regular corporations because they pay out a large portion of their income to partners (as an investor you are basically a partner and are allocated units instead of shares) usually through quarterly distributions. The burden is thus shifted to the partners who are taxed at their ordinary income rates. As ordinary income tax rates of investors are typically lower than the income tax assessed on corporations, this arrangement is advantageous to the MLPs and generally most investors..

MLPs issue a Schedule K-1 to their investors. If the MLP pays out distributions in excess of the income it generates, the distribution is classified as a "return of capital" and tax deferred until you sell your shares or units. Income from MLPs is generally taxable even in retirement accounts like 401KS and IRAs if the income generated is in excess of $1000.

Stock

Dividend Yield

Market Cap

Forward P/E

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

(NYSE:BBT)

2.40%

18.98B

11.41

N/A

12.20%

1.47

6.98B

4.90B

(NYSE:TNH)

8.70%

3.44B

N/A

459.10M

49.50%

0.30

740.80M

445.60M

(NYSE:MSB)

16.00%

4094M

9.7

32.4M

20.70%

1.82

33.12M

16.73M

(NASDAQ:MMLP)

9.40

745M

23

91.7M

61.90%

0.39

1.15B

52.8M

(NYSE:NS)

7.61%

3.58B

17

500.M

60.3%

0.47%

5.84B

283.5M

(NASDAQ:BKCC)

12.20%

638M

8.40

---------

34.00%

1.98

120M

-132M

(STD)

8.00%

63B

6

9.65B

7.6%

1.86

43.7B

69B

BB&T Corp. (BBT)

It has enterprise value of $40 billion, a ROE of 6.69%, a quarterly revenue growth rate of 12.2%, quarterly earnings growth rate of 74%; a five-year dividend growth rate of -12.2%, a five dividend average of 4.5%, a total three-year return of 25.6%, and it has been paying dividends since 1934.

Net income for the past three years:

  1. 2008= it reported a net income of $1.5 billion
  2. 2009 = net income dropped to $853 million
  3. 2010= it dropped again to $816 million
  4. 2011= Net income so far is roughly $898 million, and could could come in as high as $1.2 billion.

Profitability ratios

  1. Gross Margin N.A.
  2. Gross Margin 5 Yr Average N/A
  3. EBITD Margin 29.70
  4. EBITD - Yr Average N.A.
  5. Pre-Tax Margin 13.70
  6. Pre-Tax Margin 5 Yr Average 17.40

Key Ratios

• Price to sale 16.9

• Price to tangible book 0

• Price to cash flow 2.4

• Price to free cash flow 4.3

• 5 year sales growth N.A.

• Inventory turnover 0

• Asset turnover 0

• ROE 6.69%

• Return on assets 0.71%

• 200 day moving average 23.32

• Total debt 27.67B

• Book value 25.07

• Dividend yield 5 year average 4.50%

• Dividend rate $ 0.64 %

• Payout ratio 41.00%

• Dividend growth rate 5 year -12.72%

• Consecutive dividend increases 40 years

• Paying dividends since 1934

• Total return last 3 years 25.56%

• Total return last 5 years -24.15%

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

It has a enterprise value of $3.3 billion, a 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:

  1. 2008= it was $422.3 million,
  2. 2009 = it dropped to $122.3 million
  3. 2010= it rose to $201.6 million.
  4. 2011= Net income so far stands at $378 million and could top the $500 million mark.

Profitability ratios

  1. Gross Margin 64.90
  2. Gross Margin 5 Yr Average 38.60
  3. EBITD Margin 62.80
  4. EBITD - Yr Average 24.64
  5. Pre-Tax Margin 59.90
  6. Pre-Tax Margin 5 Yr Average 33.60

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 162.25
  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%

Mesabi Trust (MSB)

It has an enterprise value of $ 405 million, a quarterly revenue growth rate of 20.4%, a quarterly earnings growth rate of 20.4%, a sizzling ROE of 690%, a very strong three-year dividend growth rate of 55.6%, a total three-year return of 235%, and has been paying dividends since 1990. It has levered free cash flow rate of $6.96 million.

Net income the past three year is as follows:

  1. 2008,= MSB reported a net income of $3.6 million,
  2. 2009 = dropped to $12.4 million
  3. 2010= Net income rose to $34.2 million.
  4. 2011= net income so far is roughly $26.8 million; if it maintains this pace, then net income for 2011 could top the $39 million mark.

Profitability ratios

  1. Gross Margin N.A.
  2. Gross Margin 5 Yr Average N/A
  3. EBITD Margin 97.30
  4. EBITD - Yr Average N.A.
  5. Pre-Tax Margin 97.30
  6. Pre-Tax Margin 5 Yr Average 96.70

Mesabi Trust has a short interest ratio of 9.3, making it a potentially good candidate for a short squeeze.

The Trustees of Mesabi Trust declared a distribution of seventy-six cents ($0.76) per Unit of Beneficial Interest payable on February 20, 2012 to Mesabi Trust unitholders of record at the close of business on January 30, 2012. This compares to a distribution of sixty-five cents ($0.65) per Unit for the same period last year.

Key ratios

  1. Price to sales 10.86
  2. Price to tangible book 76.26
  3. Price to cash flow 11.20
  4. Price to free cash flow -29.30
  5. 5 year sales growth 9.45%
  6. Inventory turnover N/A
  7. Asset turnover 1.80

  1. ROE 719%
  2. Return on assets 111%
  3. 200 day moving average $ 26.55
  4. Total debt $ 0.00
  5. Book value $0.36
  6. Dividend yield 5 year Average 11.00%
  7. Dividend rate $ 2.42
  8. Payout ratio 89%
  9. Dividend growth rate 3 year average 55.6%
  10. Consecutive dividend increases 2 years
  11. Paying dividends since 1990
  12. Total return last 3 years 235%
  13. Total return last 5 years 36%

Martin Midstream Partners LP (MMLP)

It has an enterprise value of $1.01 billion, a quarterly earning's growth rate of 16.5%, a quarterly revenue growth of 61.90%, a ROE of 9.6%, a five-year dividend growth rate of 4.6%, and the total three-year return of 127%. It has a levered free cash flow rate of -$22.69 million.

Net income for the past three years is as follows:

  1. 2008= it was $42 million, in
  2. 2009 = dropped to $22 million and in
  3. 2010= it dropped even more to 16 million.
  4. 2011= it stands at $21.3 million; total net income for 2011 could top the $26-$29 million ranges.

Profitability ratios

  1. Gross Margin 22.00
  2. Gross Margin 5 Yr Average 21.70
  3. EBITD Margin 8.20
  4. EBITD - Yr Average 12.34
  5. Pre-Tax Margin 2.50
  6. Pre-Tax Margin 5 Yr Average 3.20

Key ratios

  1. Price to sale 0.66
  2. Price to tangible book 2.90
  3. Price to cash flow 9.90
  4. Price to free cash flow -4.80
  5. 5 year sales growth 10.17%
  6. Inventory turnover 13.60
  7. Asset turnover 1.40

  1. ROE 9.61%
  2. Return on assets 3.63%
  3. 200 day moving average $35.06
  4. Total debt $ 440
  5. Book value $14.37
  6. Dividend yield 5 year average 9.3%
  7. Dividend rate $3.05
  8. Payout ratio 262%
  9. Dividend growth rate 5 year average 4.63%
  10. Consecutive dividend increases 1 year
  11. Paying dividends since 2003
  12. Total return last 3 years 127%
  13. Total return last 5 years 55%

NuStar Energy L.P. (NS)

It has an enterprise value of $6.09 billion, a quarterly revenue growth rate of 60%, a quarterly earnings growth rate of 2.7%, a ROE of 9.32%, a five-year distribution growth rate of 4.19%, a total three-year return of 77%, and has been paying dividends/distributions since 2001.

Net income for the past three years is as follows:

  1. 2008= it came in at $254 million, in
  2. 2009 = dropped down to $224 million and in
  3. 2010= it moved up to $238 million
  4. 2011= Net income is roughly $191 million. Net income for 2011 could top the $260-270 million mark.

Profitability ratios

  1. Gross Margin 3.90
  2. Gross Margin 5 Yr Average 14.70
  3. EBITD Margin 2.20
  4. EBITD - Yr Average 14.77
  5. Pre-Tax Margin 5.20
  6. Pre-Tax Margin 5 Yr Average 5.10

NS has a levered free cash flow rate of -$49.9 million and out of a possible 5 starts we would assign NS 4 Stars.

Key ratios

  1. Price to tangible book 2.26
  2. Price to sales 0.63
  3. Price to cash flow 9.30
  4. Price to free cash flow -8.30
  5. 5 year sales growth 37.8%
  6. Inventory turnover 6.10
  7. Asset turnover 1.10

  1. ROE 9.32%
  2. Return on assets 3.8%
  3. 200 day moving average $57.50
  4. Total debt $2.97B
  5. Book value $37.98
  6. Dividend yield 5 year average 7.30%
  7. Dividend rate $4.34
  8. Payout ratio 138%
  9. Dividend growth rate 5 year average 4.19%
  10. Consecutive dividend increases 10 years
  11. Paying dividends since 2001
  12. Total return last 3 years 54%
  13. Total return last 5 years 49%

BlackRock Kelso Capital Corporation (BKCC)

It has an enterprise value of $ 926 million, a quarterly revenue growth rate of 34%, a ROE of 10.8%, a three-year dividend growth rate of -2.52%, a total three-year return of 22.9%, and has been paying dividends since 2007. It has levered free cash flow rate of -$7.78 million. BKCC is also trading roughly $1.00 below book value.

Net income has been rising for the past three years:

  1. 2008 = it reported a loss of 150 million,
  2. 2009= it reported a profit of 67 million
  3. 2010 =it reported a profit of 71 million.
  4. 2011= net income so far is roughly $69.9 Million; if net income for the next quarter matches that of the last, then the total net income for the year could top the $82 million mark.

Profitability ratios

  1. Gross Margin N.A.
  2. Gross Margin 5 Yr Average N/A
  3. EBITD Margin 60.80
  4. EBITD - Yr Average N.A.
  5. Pre-Tax Margin 66.20
  6. Pre-Tax Margin 5 Yr Average 9.30

Insider activity

Black Rock Kelso Capital Advisors LLC purchased 200, 000 shares in March at an average price of 10 per share. Director Jerrold Harris purchased 13,000 shares in March and May for an average price of 9.64-9.76 a share. The full list of transactions can be accessed here.

Potential warning signs:

Dividend growth for the past 3 years is a negative, and the payout ratio is above 150%. However, on the bright side, it sports a decent quarterly revenue growth rate of 34%, and net income has been increasing nicely over the past three years. Investors willing to take on a bit of extra risk could be well rewarded in the long run with this play.

Key ratios

  1. Price to tangible book 0.88
  2. Price to cash flow 8.60
  3. Price to free cash flow -2.90
  4. 5 year sales growth 16.79%
  5. Inventory turnover N/A
  6. Asset turnover 0.10

  1. ROE 10.70%
  2. Return on assets 5.08%
  3. 200 day moving average $8.42
  4. Total debt $ 317 million
  5. Book value $9.75
  6. Dividend yield 5 year Average 11.50
  7. Dividend rate $ 1.10
  8. Payout ratio 150%
  9. Dividend growth rate 3 year average -2.52%
  10. Consecutive dividend increases 1 years
  11. Paying dividends since 2007
  12. Total return last 3 years 22.95%
  13. Total return last 5 years N/A

Banco Santander SA (STD)

It has enterprise value of $125 billion, a price/sales value of 1.46, a revenue growth of 7.6%, a quarterly earning's growth rate of 10.3%, a five-year dividend growth rate of 13.25%, a total return of 3.94% for the past three years, a price/sales 0.83, a price/book 0.65, a price/cash flow 7.10, an EPS of 0.91, sales per share of 9.55 and has been paying dividends since 1990. STD is trading $3.18 below book value.

Net income for the last three years is as follows:

  1. 2008= it came in at $13.1 billion.
  2. 2009= it moved up a bit to $13.5 billion.
  3. 2010= it dropped to $12.2 billion.

Profitability ratios

  1. Gross Margin N.A.
  2. Gross Margin 5 Yr Average N/A
  3. EBITD Margin 40.80
  4. EBITD - Yr Average N.A.
  5. Pre-Tax Margin 16.30
  6. Pre-Tax Margin 5 Yr Average 16.20

Something to keep in mind:

S&P has already downgraded France and business insiders are reporting that S&P has put every AAA rated country in the Euro zone on watch for a downgrade. This means that potentially many banks in the euro zone could also face a downgrade. Investors should keep this in mind when it comes to deploying money in European banks.

Key ratios

  1. Price to tangible book 0.96
  2. Price to cash flow 6.80
  3. Price to free cash flow 0.80
  4. Price to book 0.62
  5. 5 year average PE ratio 9.4

  1. ROE 10.73%
  2. Return on assets 0.67%
  3. Total debt $420B
  4. 200 day moving average $ 8.52
  5. Book value $10.62
  6. Dividend yield 5 year Average 7.10%
  7. Dividend rate $0.69
  8. Payout ratio --
  9. Dividend growth rate 5 year average 13.25%
  10. Paying dividends since 1990
  11. Total return last 3 years 3.94%
  12. Total return last 5 year -41%

Conclusion

Our favourite play is Nustar Energy with TNH running at a very close second. NS has an enterprise value of $6.09 billion, a quarterly revenue growth rate of 60%, a quarterly earnings growth rate of 2.7%, a ROE of 9.32%, a five-year distribution growth rate of 4.19%, a total three-year return of 77%, and has been paying dividends/distributions since 2001.

TNH has a 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.

The key to successful long term dividend investing is to wait for key moments before deploying large amounts of money. One has to wait for the market to pull back and the stronger the pull back the more aggressive one's purchases should be. One should not deploy large amounts of capital when the market is trading close to its 52-week highs or trading at new all-time high.

This approach takes patience and discipline, but the rewards are usually worth the wait. One way to leverage one's rate of return is through the sale of covered calls. If you are bullish on a particular stock you can also sell naked puts; this has the benefit of providing another income stream. If you are assigned the shares, you get to purchase them at a much lower price (the strike price minus the premium you were paid).

All charts were sourced from dividata.com

Source: 7 Dividend Plays That Sport Yields As High As 16%