5 Dividend Champs With Yields As High As 17%

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 |  Includes: CNI, ETE, IVR, TRP, WHX
by: Tactical Investor

Investors would do well to pay attention to the following key metrics, as they could prove to be very useful in the selection process. We have listed what we believe to be some of the more important key ratios dividend investors should familiarize themselves with.

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 jeopardizing their future earnings. Ideally the company should have a ratio of 1 or higher.

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: The Highest Paying REITs With Yields As High As 19.2%.

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. If the payout ratio continues to increase, the situation warrants close monitoring. If your tolerance for risk is 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: 5 Plays With Stellar Payment Histories.

Out of the 5 plays, our favorite is Energy Transfer Equity L P (NYSE:ETE). It has an ROE of 7.98%, a quarterly revenue growth rate of 32.6%, a five year dividend average of 6.7%, and a five dividend growth rate of 22.45%, has consecutively increased its dividends for 5 years, has a total three year return of 166% and has been paying dividends since 2006. After dropping in 2010, net income in 2011 is on course to potentially increase by roughly 50%.Click to enlarge

Important facts investors should be aware in regards to investing and REITs

Payout ratios are not that important when it comes to REITs, as they 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 REITs is often higher than 100%. The more important ratio to focus on is the cash flow per share. If one focuses on the cash flow, one will see that in most cases, it exceeds the dividend declared per share.

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 trust 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 discussed in this article.

Stock

Dividend Yield

Market Cap

Forward PE

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

WHX

15.80%

263.12M

6.78

N/A

10.70%

0.53

39.97M

N/A

ETE

5.50%

9.53B

20.45

1.80B

32.10%

0.73

7.84B

1.26B

CNI

1.70%

33.34B

12.7

4.17B

12.30%

1.07

9.00B

2.97B

TRP

4.10%

28.89B

16.64

4.61B

12.40%

0.77

8.81B

3.80B

IVR

17.00%

1.81B

5.60

362M

197.60%

0.82

275.79M

231.42M

Click to enlarge

Whiting USA Trust I (NYSE:WHX)

Industry: Production & Extraction

Net income for the past three years

  • 2008 = $56.98 million
  • 2009 = $42.61 million
  • 2010 = $42.72 million

Key Ratios

  • P/E Ratio = 6.7
  • P/E High - Last 5 Yrs = N.A.
  • P/E Low - Last 5 Yrs = N.A.
  • Price to Sales = 6.53
  • Price to Book = 5.18
  • Price to Tangible Book = 5.18
  • Price to Cash Flow = 9.5
  • Price to Free Cash Flow = -13.8
  • Quick Ratio = 0
  • Current Ratio = 1
  • LT Debt to Equity = 0
  • Total Debt to Equity = 0
  • Interest Coverage = N.A.
  • Inventory Turnover = N.A.
  • Asset Turnover = 0.7
  • ROE = 66.82%
  • Return on Assets = 41.76%
  • 200 day moving average = 17.12
  • Current Ratio = N/A
  • Total debt = 0
  • Book value = 3.64
  • Qtrly Earnings Growth = 11.3%

  • Dividend yield 5 year average = 0%
  • Dividend rate = $ 2.95
  • Payout ratio = 100%
  • Dividend growth rate 3 year avg = -8.23%
  • Consecutive dividend increases = 2 years
  • Paying dividends since = 2008
  • Total return last 3 years = 105.36%
  • Total return last 5 years = N/A

Warning

Dividend was cut from 82.4 cents to 73.1 cents.

Energy Transfer Equity LP

Industry: Equipment & Services

Net income for the past three years

  • 2008 = $375.05 million
  • 2009 = $442.48 million
  • 2010 = $192.76 million
  • 2011= it stands at $224 million and could potentially top the $295 million mark.

Total cash flow from operating activities

  • 2008 = $823.76 million
  • 2009 = $723.47 million
  • 2010 = $1.09 billion

Key Ratios

  • P/E Ratio = 31.5
  • P/E High - Last 5 Yrs = 47
  • P/E Low - Last 5 Yrs = 7.6
  • Price to Sales = 1.21
  • Price to Book = 187.38
  • Price to Tangible Book = -3.08
  • Price to Cash Flow = 9.4
  • Price to Free Cash Flow = -4.5
  • Quick Ratio = 0.5
  • Current Ratio = 0.8
  • LT Debt to Equity = 222.72
  • Total Debt to Equity = 231.11
  • Interest Coverage = 1.6
  • Inventory Turnover = 20.7
  • Asset Turnover = 0.4
  • ROE = 7.98%
  • Return on Assets = 4.1%
  • 200 day moving average = 38.39
  • Current Ratio = 0.79
  • Total debt = 11.99B
  • Book value = 0.23
  • Qtrly Earnings Growth = N/A

  • Dividend yield 5 year average = 6.7%
  • Dividend rate = $ 2.44
  • Payout ratio = 168%
  • Dividend growth rate 3 year avg = 6.45%
  • Dividend growth rate 5 year avg = 22.45%
  • Consecutive dividend increases = 5 years
  • Paying dividends since = 2006
  • Total return last 3 years = 166.18%
  • Total return last 5 years = 65.42%

Canadian National Railway Co. (NYSE:CNI)

Industry: Rail

Out of a possible 5 stars we would give CNI four. It also sports a fairly high beta which makes it a good candidate for covered writes.

Net income for the past three years

  • 2006 = $1.8 billion
  • 2007 = $2.2 billion
  • 2008 = $1.56 billion

Total cash flow from operating activities

  • 2006 = $2.54 billion
  • 2007 = $2.47 billion
  • 2008 = $1.67 billion

Key Ratios

  • P/E Ratio = 14.3
  • P/E High - Last 5 Yrs = 18
  • P/E Low - Last 5 Yrs = 7.9
  • Price to Sales = 3.8
  • Price to Book = 3.01
  • Price to Tangible Book = 3.26
  • Price to Cash Flow = 10.2
  • Price to Free Cash Flow = 31

  • Quick Ratio = 0.5
  • Current Ratio = 0.9
  • LT Debt to Equity = 0.5
  • Total Debt to Equity = 0.55
  • Interest Coverage = 10.5
  • Inventory Turnover = 9.6
  • Asset Turnover = 0.4
  • ROE = 22.37%
  • Return on Assets = 8.04%
  • 200 day moving average = 74.11
  • Current Ratio = 1.08
  • Total debt = 6.56B
  • Book value = 24.09
  • Qtrly Earnings Growth = 17.7%

  • Dividend yield 5 year average = 1.8%
  • Dividend rate = $ 1.50
  • Payout ratio = 26%
  • Dividend growth rate 5 year avg = 14.77%
  • Consecutive dividend increases = 15 years
  • Paying dividends since = 1996

Positive news

Dividend increased from 32.50 cents to 37.50 cents.

TransCanada Corp (NYSE:TRP)

Industry: Equipment & Services

Net income for the past three years

  • 2008 = $1.2 billion
  • 2009 = $1.32 billion
  • 2010 = $1.28 billion

Total cash flow from operating activities

  • 2008 = $2.33 billion
  • 2009 = $2.86 billion
  • 2010 = $3.11 billion

Key Ratios

  • P/E Ratio = 19.9
  • P/E High - Last 5 Yrs = 21.7
  • P/E Low - Last 5 Yrs = 10
  • Price to Sales = 3.2
  • Price to Book = 1.88
  • Price to Tangible Book = 2.88
  • Price to Cash Flow = 9.9
  • Price to Free Cash Flow = -34.4

  • Quick Ratio = 0.3
  • Current Ratio = 0.5
  • LT Debt to Equity = 1.17
  • Total Debt to Equity = 1.24
  • Interest Coverage = 3.2
  • Inventory Turnover = 6.2
  • Asset Turnover = 0.2
  • ROE = 8.75%
  • Return on Assets = 4.15%
  • 200 day moving average = 41.62
  • Current Ratio = 0.53
  • Total debt = 21.80B
  • Book value = 22.85
  • Qtrly Earnings Growth = 1.5%

  • Dividend yield 5 year average = 3.80%
  • Dividend rate = $ 1.68
  • Payout ratio = 84%
  • Dividend growth rate 5 year avg = 8.01%
  • Consecutive dividend increases = 8 years
  • Paying dividends since = 1964

Invesco Mortgage Capital Inc. (NYSE:IVR)

Industry: REITs

Net income for the past three years

  • 1900 = $0 million
  • 2009 = $15.1 million
  • 2010 = $98.4 million
  • 2011= it stands at $207 million and could come in as high as $288 million

Total cash flow from operating activities

  • 1900 = $0 million
  • 2009 = $11.48 million
  • 2010 = $71.53 million

Key Ratios

  • P/E Ratio = 4.1
  • P/E High - Last 5 Yrs = N.A.
  • P/E Low - Last 5 Yrs = N.A.
  • Price to Sales = 4.68
  • Price to Book = 0.95
  • Price to Tangible Book = 0.95
  • Price to Cash Flow = 7.4
  • Price to Free Cash Flow = 60.6
  • Quick Ratio = N.A.
  • Current Ratio = N.A.
  • LT Debt to Equity = 0
  • Total Debt to Equity = 0
  • Interest Coverage = 3.2
  • Inventory Turnover = N.A.
  • Asset Turnover = 0
  • ROE = 20.25%
  • Return on Assets = 2.82%
  • 200 day moving average = 16
  • Current Ratio = 0.06
  • Total debt = 12.57B
  • Book value = 16.45
  • Qtrly Earnings Growth = 209.6%

  • Dividend yield 5 year average = 0%
  • Dividend rate = $ 3.42
  • Payout ratio = 89%
  • Dividend growth rate 3 year avg = 0%
  • Dividend growth rate 5 year avg = 0%
  • Consecutive dividend increases = 0 years
  • Paying dividends since = 2009

Warning

Divided was cut from 80 cents to 65 cents.

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

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.Earnings estimate graphs were sourced from dailyfinance.com. Earning Vs expectation graphs were sourced from smartmoney.com and dividend history graphs were sourced from dividata.com