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There are many metrics/ratios that are important when it comes to investing in stocks that pay dividends. We have listed some of the more important ones below and investors would do well to get a handle on some of them.

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 than earnings yield because of this.

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, 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. If the payout ratio continues to increase, the situation warrants close monitoring. If your tolerance for risk is a low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of interest.

Price to cash flow ratio is obtained by dividing the share price by cash flow per share. It is a measure of the market's expectations of a company's future financial health. The effects of depreciation and other non cash factors are removed, and this makes it easier for investors to assess foreign companies in the same industry. This ratio also provides a measure of relative value like the price to earnings ratio.

Price to free cash flow is obtained by dividing the share price by free cash flow per share. Higher ratios are associated with more expensive companies and vice versa; lower ratios are generally more attractive. If a company generated 400 million in cash flow and then spent 100 million on capital expenditure, then its free flow is $300 million. If the share price is 100 and the free cash flow per share are $5, then company trades at 20 times-free cash flow. This ratio is also useful because it can be used as a comparison to the average within the industry; this gives you an idea of how the company you are interested in holds up to the other companies within the industry.

Interest coverage is usually calculated by dividing the earnings before interest and taxes for a period of 1 year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa. Additional key metrics are addressed in this article Dividend Champs With Yields As High As 13.6%

Our favorite play on the list is Global Partners LP (NYSE:GLP), and we like it for the following reasons:

  • ROE= 5.59%
  • Five year dividend growth average= 3.13%
  • Quarterly earnings growth rate= 237%
  • Consecutive dividend increases= 2 years
  • Paying dividends since= 2006
  • Five year dividend average= 8.8%
  • Total three year return= 118%
  • Quarterly revenue growth rate=143%

$100,000 invested in GLP over 7 years would have grown to $168,300.

Our second choice is Procter & Gamble Company (NYSE:PG). Individuals who are looking for a true dividend champion that is less volatile will find PG to be a good choice. We like PG for the following reasons:

  • ROE= 18.23%
  • Five year dividend growth average= 11.13%
  • Quarterly earnings growth rate= -1.9%
  • Consecutive dividend increases= 58 years
  • Paying dividends since= 1891
  • Five year dividend average= 2.8%
  • Total three year return= 23.2%
  • Quarterly revenue growth rate=8.9%

$100,000 invested in PG over 10 years would have grown to $199,350

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

  • Payout ratios are not that important when it comes to MLPS 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 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 declared per unit.
  • 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 401(k)s and IRAs if the income generated is in excess of $1,000. 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

QRE

8.10%

756.36M

13.75

74.47M

-66.00%

N/A

172.06M

48.39M

GLP

8.40%

514.59M

15.41

80.31M

143.40%

0.58

13.48B

-61.01M

VLCCF

13.00%

376.88M

13.9

59.05M

9.40%

0.89

92.90M

44.91M

TNP

9.10%

301.85M

N/A

112.44M

-1.70%

0.83

389.33M

56.46M

PG

3.30%

176.91B

14.16

18.54B

8.90%

0.46

84.35B

12.95B

UAN

3.40%

2.08B

15.72

93.32M

66.30%

N/A

254.66M

127.20M

BMY

4.10%

54.72B

16.47

7.62B

11.40%

0.53

20.90B

4.87B

QR Energy LP (NYSE:QRE)

Industry: Production & Extraction

Net income for the past three years

  • 1900 = $0 million
  • 2009 = $-7.89 million
  • 2010 = $-5.29 million

Total cash flow from operating activities

  • 1900 = $0 million
  • 2009 = $64.91 million
  • 2010 = $95.67 million

Key Ratios

  • P/E Ratio = 19.8
  • P/E High - Last 5 Yrs = N.A.
  • P/E Low - Last 5 Yrs = N.A.
  • Price to Sales = 4.47
  • Price to Book = 3.47
  • Price to Tangible Book = 3.47
  • Price to Cash Flow = 8.8
  • Price to Free Cash Flow = 43.3
  • Quick Ratio = 1.3
  • Current Ratio = 2.7
  • LT Debt to Equity = 1.22
  • Total Debt to Equity = 1.22
  • Interest Coverage = 4.4
  • Inventory Turnover = N.A.
  • Asset Turnover = 0.2
  • ROE = 6.56%
  • Return on Assets = 3.38%
  • 200 day moving average = 20.02
  • Current Ratio = 2.66
  • Total debt = 283.29M
  • Book value = 6.09
  • Qtrly Earnings Growth = N/A
  • Dividend yield 5 year average = 0%
  • Dividend rate = $ 1.90
  • Payout ratio= 116%
  • Dividend growth rate 3 year avg = N/A
  • Dividend growth rate 5 year avg = N/A
  • Consecutive dividend increases = 0 years
  • Paying dividends since = 2011
  • Total return last 3 years = N/A
  • Total return last 5 years = N/A

Global Partners LP

Industry : Equipment & Services

Net income for the past three years

  • 2008 = $21.06 million
  • 2009 = $34.14 million
  • 2010 = $27.04 million

Total cash flow from operating activities

  • 2008 = $99.22 million
  • 2009 = $-61.13 million
  • 2010 = $-87.2 million

Key Ratios

  • P/E Ratio = 32.3
  • P/E High - Last 5 Yrs = 29.9
  • P/E Low - Last 5 Yrs = 3.4
  • Price to Sales = 0.04
  • Price to Book = 1.62
  • Price to Tangible Book = 1.85
  • Price to Cash Flow = 10.4
  • Price to Free Cash Flow = -4.4
  • Quick Ratio = 0.7
  • Current Ratio = 1.7
  • LT Debt to Equity = 1.07
  • Total Debt to Equity = 1.74
  • Interest Coverage = 1.5
  • Inventory Turnover = 23.4
  • Asset Turnover = 8.9
  • ROE = 5.59%
  • Return on Assets = 2.08%
  • 200 day moving average = 20.61
  • Current Ratio = 1.68
  • Total debt = 789.11M
  • Book value = 14.74
  • Qtrly Earnings Growth = 237.2%

  • Dividend yield 5 year average = 8.8%
  • Dividend rate = $ 2.00
  • Payout ratio = 270%
  • Dividend growth rate 3 year avg = 0.85%
  • Dividend growth rate 5 year avg = 3.13%
  • Consecutive dividend increases = 2 years
  • Paying dividends since = 2006
  • Total return last 3 years = 118.32%
  • Total return last 5 years = 29.49%

Knightsbridge Tankers, Ltd. (NASDAQ:VLCCF)

Industry : Shipping

Net income for the past three years

  • 2008 = $48.06 million
  • 2009 = $21.68 million
  • 2010 = $38.56 million

Total cash flow from operating activities

  • 2008 = $69.69 million
  • 2009 = $34.57 million
  • 2010 = $62.48 million

Key Ratios

  • P/E Ratio = 13.1
  • P/E High - Last 5 Yrs = 13.5
  • P/E Low - Last 5 Yrs = 3.6
  • Price to Sales = 4.06
  • Price to Book = 1.03
  • Price to Tangible Book = 1.03
  • Price to Cash Flow = 7
  • Price to Free Cash Flow = -3.8
  • Quick Ratio = 4.2
  • Current Ratio = 6.9
  • LT Debt to Equity = 0.41
  • Total Debt to Equity = 0.42
  • Interest Coverage = 7.3
  • Inventory Turnover = N.A.
  • Asset Turnover = 0.2
  • ROE = 9.64%
  • Return on Assets = 4.67%
  • 200 day moving average = 16.98
  • Current Ratio = 6.93
  • Total debt = 154.64M
  • Book value = 14.91
  • Qtrly Earnings Growth = 2.3%

  • Dividend yield 5 year average = 10.1%
  • Dividend rate = $ 2.00
  • Payout ratio = 99%
  • Dividend growth rate 3 year avg = 168.91%
  • Dividend growth rate 5 year avg = 97.24%
  • Consecutive dividend increases = 2 years
  • Paying dividends since = 1997
  • Total return last 3 years = 28.09%
  • Total return last 5 years = -0.32%

Warning

This is a riskier play and only individuals willing to take on a bit of extra risk should consider this play. It is attempting to put in a bottom. As long as it does not trade below 13.80 on a weekly basis, the outlook will remain neutral. A weekly close above 18 will turn the outlook to bullish.

Tsakos Energy Navigation Ltd. (NYSE:TNP)

Industry: Equipment & Services

Net income for the past three years

  • 2008 = $202.94 million
  • 2009 = $28.69 million
  • 2010 = $19.77 million

Total cash flow from operating activities

  • 2008 = $274.15 million
  • 2009 = $117.17 million
  • 2010 = $83.33 million

Key Ratios

  • P/E Ratio = N.A.
  • P/E High - Last 5 Yrs = 36.7
  • P/E Low - Last 5 Yrs = 3.1
  • Price to Sales = 0.78
  • Price to Book = 0.31
  • Price to Tangible Book = 0.31
  • Price to Cash Flow = 4.3
  • Price to Free Cash Flow = -1.7
  • Quick Ratio = 1.2
  • Current Ratio = 1.4
  • LT Debt to Equity = 1.46
  • Total Debt to Equity = 1.59
  • Interest Coverage = 0.4
  • Inventory Turnover = 13.9
  • Asset Turnover = 0.1
  • ROE = -3.67%
  • Return on Assets = 0.3%
  • 200 day moving average = 6.24
  • Current Ratio = 1.39
  • Total debt = 1.60B
  • Book value = 21.18
  • Qtrly Earnings Growth = N/A

  • Dividend yield 5 year average = 7.7%
  • Dividend rate = $ 0.60
  • Payout ratio = 95%
  • Dividend growth rate 3 year avg = -30.3%
  • Dividend growth rate 5 year avg = -8.51%
  • Consecutive dividend increases = 0 years
  • Paying dividends since = 2002
  • Total return last 3 years = -51.58%
  • Total return last 5 years = -44.76%

Warning

Net income and total cash flow from operating activities have been declining for the past 3 years in a row. The dividend took a massive haircut in 2008 and has flatlined since late 2009. Only individuals willing to take on extra risk should consider this play.

Procter & Gamble Co. (PG)

Industry: Household & Personal Products

It has a levered free cash flow rate of $7.69 billion and a current ratio of 0.79. PG is a true dividend champion.

Net income for the past three years

  • 2009 = $13.44 billion
  • 2010 = $12.74 billion
  • 2011 = $11.8 billion

Total cash flow from operating activities

  • 2009 = $14.92 billion
  • 2010 = $16.08 billion
  • 2011 = $13.24 billion

Key Ratios

  • P/E Ratio = 16.3
  • P/E High - Last 5 Yrs = 21.8
  • P/E Low - Last 5 Yrs = 9.6
  • Price to Sales = 2.1
  • Price to Book = 2.76
  • Price to Tangible Book = -7.4
  • Price to Cash Flow = 12.3
  • Price to Free Cash Flow = 52.1
  • Quick Ratio = 0.4
  • Current Ratio = 0.8
  • LT Debt to Equity = 0.35
  • Total Debt to Equity = 0.53
  • Interest Coverage = 19.1
  • Inventory Turnover = 5.1
  • Asset Turnover = 0.6
  • ROE = 18.23%
  • Return on Assets = 7.24%
  • 200 day moving average = 63.72
  • Current Ratio = 0.83
  • Total debt = 33.85B
  • Book value = 23.27
  • Qtrly Earnings Growth = -1.9%
  • Dividend yield 5 year average = 2.8%
  • Dividend rate = $ 2.10
  • Payout ratio = 53%
  • Dividend growth rate 3 year avg = 9.49%
  • Dividend growth rate 5 year avg = 11.13%
  • Consecutive dividend increases = 58 years
  • Paying dividends since = 1891
  • Total return last 3 years = 23.61%
  • Total return last 5 years = 12.68%

CVR Partners LP (NYSE:UAN)

Industry: Agricultural Crop Production

The dividend was increased from 57.20 cents to 58.80 cents. It also has a levered free cash flow of $239 million and a current ratio of 5.2.

Key Ratios

  • P/E Ratio = 30.9
  • P/E High - Last 5 Yrs = N.A.
  • P/E Low - Last 5 Yrs = N.A.
  • Price to Sales = 9.65
  • Price to Book = 4.25
  • Price to Tangible Book = 4.63
  • Price to Cash Flow = 18.8
  • Price to Free Cash Flow = N.A.
  • Quick Ratio = 4.6
  • Current Ratio = 5.1
  • LT Debt to Equity = 0.26
  • Total Debt to Equity = 0.26
  • Interest Coverage = 35.9
  • Inventory Turnover = N.A.
  • Asset Turnover = 0
  • ROE = 16.2%
  • Return on Assets = 7.36%
  • 200 day moving average = 24.19
  • Current Ratio = 5.12
  • Total debt = 127.41M
  • Book value = 6.7
  • Qtrly Earnings Growth = 167.9%
  • Dividend yield 5 year average = 0%
  • Dividend rate = $ 2.09
  • Payout ratio = 44%
  • Dividend growth rate 3 year avg = N/A
  • Dividend growth rate 5 year avg =N/A
  • Consecutive dividend increases = 0 years
  • Paying dividends since = 2011

Warning

Very short dividend history but the charts look very strong and it has a strong quarterly earnings growth rate of 167%. This could turn out to be a good long term play.

Bristol-Myers Squibb Co. (NYSE:BMY)

Industry: Pharmaceuticals

BMY is another true dividend champion with a levered free cash flow rate of $5.25 billion and a current ratio of 2.03.

Net income for the past three years

  • 2008 = $5.25 billion
  • 2009 = $10.62 billion
  • 2010 = $3.11 billion

Total cash flow from operating activities

  • 2008 = $3.71 billion
  • 2009 = $4.07 billion
  • 2010 = $4.5 billion

Key Ratios

  • P/E Ratio = 14.9
  • P/E High - Last 5 Yrs = 29.7
  • P/E Low - Last 5 Yrs = 6.1
  • Price to Sales = 2.58
  • Price to Book = 3.3
  • Price to Tangible Book = 7
  • Price to Cash Flow = 12.2
  • Price to Free Cash Flow = 42.9
  • Quick Ratio = 1.6
  • Current Ratio = 2
  • LT Debt to Equity = 0.33
  • Total Debt to Equity = 0.34
  • Interest Coverage = 39.8
  • Inventory Turnover = 3.6
  • Asset Turnover = 0.7
  • ROE = 30.17%
  • Return on Assets = 13.51%
  • 200 day moving average = 31.26
  • Current Ratio = 2.03
  • Total debt = 5.62B
  • Book value = 9.78
  • Qtrly Earnings Growth = 2.1%

  • Dividend yield 5 year average = 4.9%
  • Dividend rate = $ 1.36
  • Payout ratio = 89%
  • Dividend growth rate 3 year avg = 2.37%
  • Dividend growth rate 5 year avg = 3.52%
  • Consecutive dividend increases = 2 years
  • Paying dividends since = 1900
  • Total return last 3 years = 56.33%
  • Total return last 5 years = 47.08%

Conclusion

The markets are overbought and indicating that a fast and sharp correction could be in the works. The SPX hit the targets we issued over six weeks ago (1305-1325) and we now expect that it will test the 1230-1240 ranges with the possibility of dropping as low as 1200; after that we expect the markets to mount a rather strong counter rally until about March of this year. Long term dividend players should wait for a strong pull back before commuting large sums of money to this market.

All dividend history charts sourced from dividata.com.

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, 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 Dividend Plays With Yields As High As 13%