Seeking Alpha
Profile| Send Message| ()  

Investors would do well to pay attention to the following key metrics, as they could prove to be very useful in the selection process.

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.

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 some time.

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 range.

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. Investors looking for other investment ideas might find this article to be of interest 7 Candidates With Yields As High As 11.5%

Our favorite play on the list is Vanguard Natural Resource LLC. It has a strong quarterly revenue growth rate of 228%, a ROE of 23.41%, 3 year dividend growth rate of 10.88%, a three total return of 325%, it has consecutively increased its dividends from day 1 and it has a relatively low beta of 0.45.

One other play of interest that carries a slightly higher risk is Chimera Investment Corporation (CIM). It has a yield of 15%, a quarterly revenue growth rate of -37%, a ROE of 17%, a three-year dividend growth rate of 1.24%, a total three-year return of 54%, and has been paying dividends since 2007.

Net income for the past three years

  • 2008= -$119 million
  • 2009= $322.9 million
  • 2010= $532.8 million
  • 2011= it stands at $371.96 million and could top the $461 million mark.

Total cash flow from operating activities

  • 2008= $30.6 million
  • 2009 =$168.6 million
  • 2010 = -$305.5 million
  • 2011= It stands at $337.9 million and could top the $457 million mark.

Warning signals

The dividend has been cut from $0.13 to $0.11 and it sports a negative quarterly revenue growth of -37%. On the positive side net income has been increasing for the past 3 years and is on course to increase again in 2011.

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

  • 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.
  • 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. 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

CIG

5.5%

13.36B

12.44

2.91B

10.70%

0.66

8.04B

2.06B

VNR

8.50%

840.5M

16.03

222.94M

228.10%

0.45

249.99M

149.68M

FLY

6.00%

337.83M

7.89

169.48M

-8.40%

1.92

201.38M

113.65M

WR

4.50%

3.40B

14.29

773.97M

5.20%

0.52

2.14B

445.11M

AEP

4.50%

19.38B

12.9

4.81B

6.60%

0.40

15.11B

4.30B

RAI

5.60%

23.36B

13.51

2.66B

-1.70%

0.63

8.54B

1.11B

Companhia Energetica de Minas (CIG)

Industry: Electric Utilities

Net income for the past three years

  • 2008 = 752 million
  • 2009 = 1.26 billion
  • 2010 = 1.36 billion

Total cash flow from operating activities

  • 2008 = 1.27 billion
  • 2009 = 1.47 billion
  • 2010 = 2.08 billion

Key Ratios

  • P/E Ratio 7.1
  • P/E High - Last 5 Yrs 26.9
  • P/E Low - Last 5 Yrs 4.9
  • Price to Sales 2.19
  • Price to Book 1.9
  • Price to Tangible Book 3.37
  • Price to Cash Flow 7.8
  • Price to Free Cash Flow -668
  • Quick Ratio 0.9
  • Current Ratio 1.2
  • LT Debt to Equity 0.78
  • Total Debt to Equity 1.07
  • Interest Coverage N.A.
  • Inventory Turnover N.A.
  • Asset Turnover 0

  • ROE 19.26%
  • Return on Assets 7.67%
  • 200 day moving average 17.48
  • Current Ratio 1.19
  • Total debt 7.98B
  • Book value 10.92
  • Qtrly Earnings Growth -0.40%
  • Dividend yield 5 year average 5.50%
  • Dividend rate $1.08
  • Payout ratio 58%
  • Dividend growth rate 3 year average 46.08%
  • Dividend growth rate 5 year average 17.49%
  • Consecutive dividend increases 0 years
  • Total return last 3 years 143.83%
  • Total return last 5 years 128.22%

Vanguard Natural Resource LLC (VNR)

Industry: Production & Extraction

It has a levered free cash flow rate of -$66.2 and a current ratio of 0.14.

Net income for the past three years

  • 2008= -$3.7 million
  • 2009=- $95.7 million
  • 2010= $21.8.9 million
  • 2011= it stands at $107 million.

Total cash flow from operating activities

  • 2008= $39.5 million
  • 2009 =$52.1 million
  • 2010 = $71.5 million
  • 2011= It stands at $84.2 million

Key Ratios

  • Price to sale 5.4
  • Price to tangible book 0
  • Price to cash flow 8.3
  • Price to free cash flow N.A.
  • 5 year sales growth N.A.
  • Inventory turnover 0
  • Asset turnover 0

  • ROE 23.41%
  • Return on assets 9.32%
  • 200 day moving average 27.65
  • Total debt 749.50M
  • Book value 11.58
  • Qtrly Earnings Growth -----
  • Dividend yield 5 year Average 0.00%
  • Dividend rate $ 2.35
  • Payout ratio 103.00%
  • Dividend growth rate 3 year average 10.88%
  • Dividend growth rate 5 year average 0.00%
  • Consecutive dividend increases 3 years
  • Paying dividends since 2008
  • Total return last 3 years 325.12%
  • Total return last 5 years N/A %

Fly Leasing Ltd. (FLY)

Industry: Airlines/Air Freight

Net income for the past three years

  • 2008 = 6.89 billion
  • 2009 = 6.34 billion
  • 2010 = 7.25 billion

Total cash flow from operating activities

  • 2008 = 7.935 billion
  • 2009 = 7.884 billion
  • 2010 = 9.437 billion

Key ratios

  • Price to tangible book .75
  • Price to sales 1.67
  • Price to cash flow 2.80
  • Price to free cash flow 37.00
  • 5 year sales growth N/A
  • Inventory turnover N/A
  • Asset turnover 0.10

  • ROE 4.66%
  • Return on assets 2.68%
  • 200 day moving average $12.04
  • Qrtly earnings growth -72%
  • Total debt $1.35B
  • Book value $17.52
  • Dividend yield 5 year Average N/A
  • Dividend rate $0.80
  • Payout ratio 101%
  • Dividend growth rate 5 year average N/A
  • Dividend growth rate 3 years -20%
  • Consecutive dividend increases 0 years
  • Paying dividends since 2008
  • Total return last 3 years 196%
  • Total return last 5 years N/A

Warning signals

Dividend has been cut from 20 cents to 16 cents and it has a 3 year dividend growth rate of -20%

Westar Energy Inc (WR)

Industry: Electric Utilities

It has a levered free cash flow rate of -$174 million and a current ratio of 0.68. It has also consecutively increased dividends for 7 years in a row and has a payout ratio of 70%. Out of a possible 5 stars we would assign WR three.

Net income for the past three years

  • 2008 = $.18 billion
  • 2009 = $.18 billion
  • 2010 = $.2 billion

Total cash flow from operating activities

  • 2008 = $.27 billion
  • 2009 = $.48 billion
  • 2010 = $.61 billion

Key Ratios

  • P/E Ratio 15.4
  • P/E High - Last 5 Yrs 15.6
  • P/E Low - Last 5 Yrs 9.4
  • Price to Sales 1.54
  • Price to Book 1.28
  • Price to Tangible Book 1.28
  • Price to Cash Flow 6.1
  • Price to Free Cash Flow -8.8
  • Quick Ratio 0.3
  • Current Ratio 0.7
  • LT Debt to Equity 1.06
  • Total Debt to Equity 1.22
  • Interest Coverage 2.8
  • Inventory Turnover 5.50
  • Asset Turnover 0.3

  • ROE 8.81%
  • Return on Assets 3.63%
  • 200 day moving average 26.71
  • Current Ratio 0.68
  • Total debt 3.16B
  • Book value 22.1
  • Qtrly Earnings Growth 17.60%
  • Dividend yield 5 year average 5.00%
  • Dividend rate $1.28
  • Payout ratio 70.00%
  • Dividend growth rate 3 year avg 3.34%
  • Dividend growth rate 5 year avg 5.08%
  • Consecutive dividend increases 7 years
  • Paying dividends since 1924
  • Total return last 3 years 64.15%
  • Total return last 5 years 32.88%

American Electric Power Company (AEP)

Industry: Electric Utilities

Net income for the past three years

  • 2008 = $1.38 billion
  • 2009 = $1.36 billion
  • 2010 = $1.21 billion

Total cash flow from operating activities

  • 2008 = $2.58 billion
  • 2009 = $2.48 billion
  • 2010 = $2.66 billion

Key Ratios

  • P/E Ratio=10.9
  • P/E High - Last 5 Yrs 17.5
  • P/E Low - Last 5 Yrs 7.5
  • Price to Sales 1.31
  • Price to Book 1.35
  • Price to Tangible Book 1.36
  • Price to Cash Flow 5.7
  • Price to Free Cash Flow 6.5
  • Quick Ratio 0.4
  • Current Ratio 0.8
  • LT Debt to Equity 1.04
  • Total Debt to Equity 1.21
  • Interest Coverage 3
  • Inventory Turnover 7.4
  • Asset Turnover 0.3

  • ROE 10.83%
  • Return on Assets 3.73%
  • 200 day moving average 38.53
  • Current Ratio 0.77
  • Total debt 17.76B
  • Book value 30.34
  • Qtrly Earnings Growth 67.20%
  • Dividend yield 5 year average 4.50%
  • Dividend rate $1.88
  • Payout ratio 58.00%
  • Dividend growth rate 3 year avg 4.15%
  • Dividend growth rate 5 year avg 4.32%
  • Consecutive dividend increases 2 years
  • Paying dividends since 1909
  • Total return last 3 years 45.18%
  • Total return last 5 years 17.86%

New developments

It raised its dividend from 46 cents to 47 cents.

Reynolds American Inc (RAI)

Industry: Tobacco Products

It has a strong levered free cash flow rate of 1.42 billion and a current ratio of 1.09

Net income for the past three years

  • 2008= $1.33 billion
  • 2009 =$962 million
  • 2010 = $1.13 billion
  • 2011= it stands at $1.024 billion and could potentially top the $1.4 billion mark.

Total cash flow from operating activities

  • 2008= $1.31 billion
  • 2009 =$1.45 billion
  • 2010 = $1.26 billion
  • 2011= It stands at roughly $841 million.

Key Ratios

  • Price to sale 16.3
  • Price to tangible book 0
  • Price to cash flow 5.4
  • Price to free cash flow 6.2
  • 5 year sales growth 1.95
  • Inventory turnover 0
  • Asset turnover 0

  • ROE 19.98%
  • Return on assets 9.36%
  • 200 day moving average 38.45
  • Total debt 3.67B
  • Book value 11.52
  • Qtrly Earnings Growth -3.70%
  • Dividend yield 5 year Average 6.10%
  • Dividend rate $ 2.24 %
  • Payout ratio 95.00%
  • Dividend growth rate 3 year average 8.33%
  • Dividend growth rate 5 year average 9.52%
  • Consecutive dividend increases 2 years
  • Paying dividends since 2004
  • Total return last 3 years 130.43%
  • Total return last 5 years 58.96%

New developments

Dividend was increased from 53 cents to 56 cents.

Conclusion

The markets have had a nice run and are rather overbought on the short to intermediate time frames. Long-term investors would be best served if they waited for the markets to pull back strongly before opening up new long term positions. Our targets for the SPX were hit, and the charts are indicating that a top is either in place or close at hand.

All charts were sourced from dividata.com.

Source: 7 Stocks With Yields As High As 15%

Additional disclosure: 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. The Latin maxim caveat emptor applies-let the buyer beware.