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Market volatility and economic uncertainty are driving more individuals into stocks that pay dividends. Investors who are new to the concept of dividend investing should take the time to understand the following ratios as they could prove to be very useful in spotting future champions.

Free cash flow yield is obtained by dividing free cash flow per share by the current price of each share. Generally lower ratios are associated with an unattractive investment and vice versa. Free cash flow takes into account capital expenditures and other ongoing costs associated with the day to day to functions of the business. In our view free cash flow yield is a better valuation metric then earnings yield because of the above factor

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. Investors looking for other ideas might find this article to be of interest 7 Candidates Sporting Yields As High As 12%.

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

Debt to Equity Ratio is found by dividing the company's total amount of long-term debt (debts with interest rates that have a maturity longer than one year) by the total amount of equity. A debt to equity ratio of 0.5 tells us that the company is using 50 cents of liabilities in addition to each $1 dollar of shareholders equity in the business. There is no fixed ideal number as it depends on the industry the company is in. However, in general a ratio under 1 is acceptable and ideally it should be in the 0.5-0.6 ranges.

Current Ratio is obtained by dividing the current assets by current liabilities. This ratio allows you to see if the company can pay its current debts without potentially jeopardising their future earnings. Ideally the company should have a ratio of 1 or higher.

Quick ratio or acid-test is obtained by adding cash and cash equivalents plus marketable securities and accounts receivable dividing them by current liabilities. It is a measure of a company's ability to use its quick assets (assets that can be sold of immediately at close to book value) to pay off its current liabilities immediately. A company with a quick ratio of less than 1 cannot pay back its current liabilities.

Price to tangible book is obtained by dividing share price by tangible book value per share. The ratio gives investors some idea of whether they are paying too much for what would be left over if the company were to declare bankruptcy immediately. In general stocks that trade at higher price to tangible book value could leave investors facing a great percentage per share loss than those that trade at lower ratios. The price to tangible book value is theoretically the lowest possible price the stock would trade to

Our favorite play is Universal Health Realty Income; it has a quarterly revenue growth rate of 10%, a ROE of 11.0%, a five year dividend growth rate of 1.42%, a 3 year total return of 56.9%, a five year dividend average of 6.9%, and has consecutively increased its dividend for a whopping 20 years. It has a levered free cash flow rate of $16.1 million. Out of a possible 5 stars we would issue UHT a full five.

Enterprise Products Partners LP runs at a very close second. It has 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 since1998. 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.

BCE Inc (NYSE:BCE) and Enterprise Products Partners LP (NYSE:EPD) sport yields of 5.20% and 5.10% respectively.

BCE has a levered free cash flow rate of $1.06 billion and current ratio 0.76.

Net income for the past three years

2008 = $770.84 million

2009 = $1.66 billion

2010 = $2.3 billion

Total cash flow from operating activities

2008 = $4.91 billion

2009 = $4.66 billion

2010 = $4.76 billion

Key ratios

  1. ROE = 16.7%
  2. Return on Assets = 6.63%
  3. 200 day moving average = $39.17
  4. Current Ratio = 0.76
  5. Total debt = 14.84B
  6. Book value = 13.41
  7. Qtrly Earnings Growth = 40.3%

Enterprise Products Partners LP 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 since1998. 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.

Key Ratios

  1. ROE 14.55%
  2. Return on assets 5.23%
  3. Total debt 15.4B
  4. 200 day moving average $43.64
  5. Book value $13.14
  6. Dividend yield 5 year Average 6.5%
  7. Dividend rate $2.40
  8. Payout ratio 190%

New 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.

Important facts investors should be aware in regards to investing in MLPs and REITS

  1. Payout ratios are not that important when it comes to MLPS/REITS as they are required by law to pay a majority of their cash flow as distributions. Payout ratios are calculated by dividing the dividend/distribution rate by the net income per share, and this is why the payout ratio for MLPs and REITS is often higher than 100%. The more important ratio to focus on 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/dividend declared per unit/share.
  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.
  3. 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. For more information, on this topic investors can visit the National Association of Publicly Traded Partnerships.

Stock

Dividend Yield

Market Cap

Forward PE

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

UHT

6.10%

505.75M

15.66

23.47M

10.20%

0.64

30.85M

21.20M

NUE

3.30%

13.95B

14.31

1.79B

26.90%

1.12

19.05B

1.33B

POM

5.40%

4.56B

15.81

1.04B

-20.50%

0.52

6.20B

799.00M

FE

5.20%

17.77B

12.99

3.63B

27.00%

0.46

15.06B

3.23B

SFL

13.70%

878.29M

8.1

196.10M

10.10%

1.46

286.92M

145.59M

Universal Health Realty Income (NYSE: UHT)

Industry : REITs

The dividend was raised from 60.50 cents to 61 cents.

Net income for the past three years

2008 = $11.66 million

2009 = $18.58 million

2010 = $16.31 million

Total cash flow from operating activities

2008 = $21.85 million

2009 = $24.99 million

2010 = $23.05 million

Key Ratios

P/E Ratio = 33.1

P/E High - Last 5 Yrs = 40.1

P/E Low - Last 5 Yrs = 10.1

Price to Sales = 16.43

Price to Book = 3.78

Price to Tangible Book = 3.78

Price to Cash Flow = 33.1

Price to Free Cash Flow = -33.8

Quick Ratio = N.A.

Current Ratio = N.A.

LT Debt to Equity = 0.12

Total Debt to Equity = 0.79

Interest Coverage = 9.4

Inventory Turnover = N.A.

Asset Turnover = 0.1

ROE = 11.01%

Return on Assets = 4.55%

200 day moving average = 388.01K

Current Ratio = 1.41

Total debt = 105.15M

Book value = 10.58

Qtrly Earnings Growth = -1.2%

Dividend yield 5 year average = 6.9%

Dividend rate = $ 2.44

Payout ratio = 200%

Dividend growth rate 3 year avg = 1.2%

Dividend growth rate 5 year avg = 1.42%

Consecutive dividend increases = 20 years

Paying dividends since = 1990

Total return last 3 years = 56.91%

Total return last 3 years = 32.66%

Nucor Corp. (NYSE: NUE)

Industry: Non-Precious Metals

The dividend was raised from 36.25 cents to 36.50 cents.

Net income for the past three years

2008 = $1.84 billion

2009 = $-293.62 million

2010 = $134.1 million

Total cash flow from operating activities

2008 = $2.5 billion

2009 = $1.18 billion

2010 = $873.41 million

Key Ratios

P/E Ratio = 22.2

P/E High - Last 5 Yrs = N.A.

P/E Low - Last 5 Yrs = N.A.

Price to Sales = 0.73

Price to Book = 1.86

Price to Tangible Book = 2.87

Price to Cash Flow = 11.4

Price to Free Cash Flow = 53.4

Quick Ratio = 1.8

Current Ratio = 2.9

LT Debt to Equity = 0.53

Total Debt to Equity = 0.57

Interest Coverage = 6.5

Inventory Turnover = 8.7

Asset Turnover = 1.4

ROE = 9.42%

Return on Assets = 5.34%

200 day moving average = 37.23

Current Ratio = 2.92

Total debt = 4.29B

Book value = 23.56

Qtrly Earnings Growth = 672.6%

Dividend yield 5 year average = 3.7%

Dividend rate = $ 1.46

Payout ratio = 74%

Dividend growth rate 3 year avg = -7.73%

Dividend growth rate 5 year avg = -6.28%

Consecutive dividend increases = 39 years

Paying dividends since = 1973

Total return last 3 years = 21.82%

Total return last 3 years = -16.37%

Pepco Holdings Inc. (NYSE: POM)

Industry : Electric Utilities

Net income for the past three years

2008 = $300 million

2009 = $235 million

2010 = $32 million

Total cash flow from operating activities

2008 = $413 million

2009 = $606 million

2010 = $813 million

Key Ratios

P/E Ratio = 16.9

P/E High - Last 5 Yrs = 141.4

P/E Low - Last 5 Yrs = 9.5

Price to Sales = 0.74

Price to Book = 1.05

Price to Tangible Book = 1.55

Price to Cash Flow = 6.5

Price to Free Cash Flow = 3.5

Quick Ratio = 0.6

Current Ratio = 1

LT Debt to Equity = 0.96

Total Debt to Equity = 1.12

Interest Coverage = 2.4

Inventory Turnover = 34

Asset Turnover = 0.4

ROE = 5.86%

Return on Assets = 2.66%

200 day moving average = 19.26

Current Ratio = 0.96

Total debt = 4.86B

Book value = 19.2

Qtrly Earnings Growth = 370.6%

Dividend yield 5 year average = 5.6%

Dividend rate = $ 1.08

Payout ratio = 98%

Dividend growth rate 3 year avg = ERROR

Dividend growth rate 5 year avg = 0.77%

Consecutive dividend increases = 0 years

Paying dividends since = 1904

Total return last 3 years = 33.47%

Total return last 3 years = N/A

FirstEnergy Corp. (NYSE: FE)

Industry : Electric Utilities

Net income for the past three years

2008 = $1.35 billion

2009 = $1.01 billion

2010 = $784 million

Total cash flow from operating activities

2008 = $2.22 billion

2009 = $2.47 billion

2010 = $3.08 billion

Key Ratios

P/E Ratio = 17.5

P/E High - Last 5 Yrs = 19.2

P/E Low - Last 5 Yrs = 9.4

Price to Sales = 1.13

Price to Book = 1.35

Price to Tangible Book = 3.1

Price to Cash Flow = 14.3

Price to Free Cash Flow = 20.4

Quick Ratio = 0.4

Current Ratio = 0.7

LT Debt to Equity = 1.21

Total Debt to Equity = 1.35

Interest Coverage = 2.4

Inventory Turnover = 15.9

Asset Turnover = 0.4

ROE = 8.34%

Return on Assets = 3.78%

200 day moving average = 43.79

Current Ratio = 0.68

Total debt = 17.66B

Book value = 31.19

Qtrly Earnings Growth = 185.5%

Dividend yield 5 year average = 4.6%

Dividend rate = $ 2.20

Payout ratio = 91%

Dividend growth rate 3 year avg = ERROR

Dividend growth rate 5 year avg = 4.22%

Consecutive dividend increases = 0 years

Paying dividends since = 1998

Total return last 3 years = -0.59%

Total return last 3 years = -8.39%

Ship Finance International Ltd (NYSE: SFL)

Industry : Equipment & Services

Net income for the past three years

2008 = $181.62 million

2009 = $192.6 million

2010 = $165.72 million

Total cash flow from operating activities

2008 = $211.39 million

2009 = $125.53 million

2010 = $153.78 million

Key Ratios

P/E Ratio = 8.9

P/E High - Last 5 Yrs = 13.8

P/E Low - Last 5 Yrs = 1.5

Price to Sales = 4.09

Price to Book = 1.07

Price to Tangible Book = 1.07

Price to Cash Flow = 6

Price to Free Cash Flow = -2.5

Quick Ratio = 0.4

Current Ratio = 1

LT Debt to Equity = 2.2

Total Debt to Equity = 2.41

Interest Coverage = 2.3

Inventory Turnover = N.A.

Asset Turnover = 0.1

ROE = 16.14%

Return on Assets = 3.21%

200 day moving average = 4.18M

Current Ratio = 1

Total debt = 2.03B

Book value = 10.61

Qtrly Earnings Growth = -20.7%

Dividend yield 5 year average = 11.4%

Dividend rate = $ 1.55

Payout ratio = 93%

Dividend growth rate 3 year avg = -6.75%

Dividend growth rate 5 year avg = -1.77%

Consecutive dividend increases = 0 years

Paying dividends since = 2004

Total return last 3 years = 22.88%

Total return last 3 years = -21.09%

All charts were sourced from dividata.com

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

Source: 7 Investment Ideas With Yields As High As 13.7%