Seeking Alpha
Profile| Send Message|
( followers)

Today, we are going to examine five stocks that offer high yields, but before we proceed any further ,investors would be best served by getting a handle on some of the following key metrics. At the very least they could prevent you from deploying your money into a dud.

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 pay out 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 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: 5 Plays With Stellar Payment Histories.

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 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 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.

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 favourite play on the list is Energy Transfer Equity L P (NYSE:ETE). We find it attractive for the following reasons;

  • It has five year dividend growth rate of 22.5%
  • It has five year dividend average of 6.7%
  • It has consecutively increased dividends for 5 years going on 6.
  • It sports a total 3 year return of 166%
  • It has a quarterly revenue growth rate of 32%
  • Net income and cash flow from operating activities is on the rise again.

100K invested in ETE for 6 years would have grown to 231,135.

Stock

Dividend Yield

Market Cap

Forward PE

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

CIM

15.00%

3.13B

6.76

-157M

-37.90%

1.27

614.10M

409.38M

ETE

5.50%

9.53B

20.45

1.80B

32.10%

0.73

7.84B

1.26B

SID

7.40%

14.97B

5.9

3.61B

7.40%

1.79

9.07B

1.66B

EEP

6.30%

8.85B

20.5

871.80M

25.60%

0.65

9.20B

618.70M

CTL

7.80%

23.25B

14.65

5.54B

162.90%

0.73

12.42B

4.04B

Chimera Investment Corp (NYSE:CIM)

Industry: Finance Intermediaries & Services

Net income for the past three years

  • 2008 = $-119.81 million
  • 2009 = $323.99 million
  • 2010 = $532.86 million
  • 2011= it stands at $371 million and could come in as high as $460 million

Total cash flow from operating activities

  • 2008 = $30.67 million
  • 2009 = $168.69 million
  • 2010 = $305.59 million

Key Ratios

  • P/E Ratio = 6.2
  • P/E High - Last 5 Yrs = N.A.
  • P/E Low - Last 5 Yrs = N.A.
  • Price to Sales = -32.02
  • Price to Book = 0.93
  • Price to Tangible Book = 0.93
  • Price to Cash Flow = 6.2
  • Price to Free Cash Flow = -16.2
  • Quick Ratio = N.A.
  • Current Ratio = N.A.
  • LT Debt to Equity = 1.84
  • Total Debt to Equity = 1.84
  • Interest Coverage = 4.4
  • Inventory Turnover = N.A.
  • Asset Turnover = 0
  • ROE = 17.75%
  • Return on Assets = 6.55%
  • 200 day moving average = 2.87
  • Current Ratio = 0.07
  • Total debt = 6.20B
  • Book value = 3.27
  • Qtrly Earnings Growth = -43.3%

  • Dividend yield 5 year average = 12.6%
  • Dividend rate = $ 0.51
  • Payout ratio = 104%
  • Dividend growth rate 3 year avg = 1.24%
  • Dividend growth rate 5 year avg = 0%
  • Consecutive dividend increases = 0 years
  • Paying dividends since = 2007
  • Total return last 3 years = 41.21%
  • Total return last 5 years = N/A

Dividend update and notes

The divided was cut from 13 cents to 11 cents. From a technical perspective, the stock appears to have put in a bottom, though it could potentially test the 2.40-2.60 range again before trending higher. If it should trade to this range, it would make for a good play; individuals willing to take on a little extra risk could be well rewarded with this chap. A weekly close above 3.40 will turn the outlook to bullish and should result in a test of the 4.10-4.30 range.

Energy Transfer Equity LP (ETE)

Industry: Equipment & Services

It has a levered free cash flow rate of $-524 million and a current ratio of 0.80.

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 = 38.42
  • 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%

Companhia Siderurgica Nacional (NYSE:SID)

Industry: Non-Precious Metals

Net income for the past three years

  • 2008 = $2.66 billion
  • 2009 = $1.51 billion
  • 2010 = $1.52 billion

Total cash flow from operating activities

  • 2008 = $2.07 billion
  • 2009 = $-443.45 million
  • 2010 = $1.5 billion

Key Ratios

  • P/E Ratio = 4.7
  • P/E High - Last 5 Yrs = 22.2
  • P/E Low - Last 5 Yrs = 2.3
  • Price to Sales = 1.34
  • Price to Book = 3.37
  • Price to Tangible Book = 3.61
  • Price to Cash Flow = 6.1
  • Price to Free Cash Flow = -8.8
  • Quick Ratio = 3.6
  • Current Ratio = 4.5
  • LT Debt to Equity = 3.05
  • Total Debt to Equity = 3.33
  • Interest Coverage = 3.6
  • Inventory Turnover = 2.9
  • Asset Turnover = 0.5
  • ROE = 40.16%
  • Return on Assets = 8.25%
  • 200 day moving average = 9.05
  • Current Ratio = 4.46
  • Total debt = 15.91B
  • Book value = 3.28
  • Qtrly Earnings Growth = 51.6%

  • Dividend yield 5 year average = 5.9%
  • Dividend rate = $ 0.64
  • Payout ratio = 35%
  • Dividend growth rate 3 year avg = -1.94%
  • Dividend growth rate 5 year avg = 8.23%
  • Consecutive dividend increases = 2 years
  • Paying dividends since = 1997
  • Total return last 3 years = 63.98%
  • Total return last 5 years = 166.3%

Enbridge Energy Partners, L.P. (NYSE:EEP)

Industry : Equipment & Services

Net income for the past three years

  • 2008 = $403.2 million
  • 2009 = $316.6 million
  • 2010 = $-198.5 million

Total cash flow from operating activities

  • 2008 = $543.3 million
  • 2009 = $728.4 million
  • 2010 = $377.9 million

Key Ratios

  • P/E Ratio = 18.4
  • P/E High - Last 5 Yrs = N.A.
  • P/E Low - Last 5 Yrs = N.A.
  • Price to Sales = 0.83
  • Price to Book = 1.99
  • Price to Tangible Book = 2.29
  • Price to Cash Flow = 10.8
  • Price to Free Cash Flow = -7.6
  • Quick Ratio = 0.9
  • Current Ratio = 1
  • LT Debt to Equity = 1.39
  • Total Debt to Equity = 1.41
  • Interest Coverage = 2.2
  • Inventory Turnover = 50.7
  • Asset Turnover = 0.9
  • ROE = 10.23%
  • Return on Assets = 3.08%
  • 200 day moving average = 29.75
  • Current Ratio = 1.05
  • Total debt = 5.61B
  • Book value = 13.03
  • Qtrly Earnings Growth = N/A

  • Dividend yield 5 year average = 8%
  • Dividend rate = $ 2.11
  • Payout ratio = 115%
  • Dividend growth rate 3 year avg = 2.56%
  • Dividend growth rate 5 year avg = 2.3%
  • Consecutive dividend increases = 5 years
  • Paying dividends since = 1992
  • Total return last 3 years = 149.24%
  • Total return last 5 years = 64.01%

CenturyLink, Inc. (NYSE:CTL)

Industry: Services

It has a levered free cash flow or $3.22 billion and a current ratio of 0.80.

Net income for the past three years

  • 2008 = $365.74 million
  • 2009 = $647.22 million
  • 2010 = $947.71 million
  • 2011= it stands at $466 million and could top the $616 million mark.

Total cash flow from operating activities

  • 2008 = $853.3 million
  • 2009 = $1.58 billion
  • 2010 = $2.05 billion
  • 2011= it stands at $3.48 billion and could top the $4.6 billion mark.

Key Ratios

  • P/E Ratio = 20.2
  • P/E High - Last 5 Yrs = 15
  • P/E Low - Last 5 Yrs = 4.5
  • Price to Sales = 1.84
  • Price to Book = 1.04
  • Price to Tangible Book = -7.6
  • Price to Cash Flow = 6
  • Price to Free Cash Flow = -72.1
  • Quick Ratio = 0.7
  • Current Ratio = 0.8
  • LT Debt to Equity = 0.96
  • Total Debt to Equity = 1.01
  • Interest Coverage = 2.3
  • Inventory Turnover = 281.3
  • Asset Turnover = 0.3
  • ROE = 4.38%
  • Return on Assets = 3.8%
  • 200 day moving average = 35.58
  • Current Ratio = 0.8
  • Total debt = 22.18B
  • Book value = 35.59
  • Qtrly Earnings Growth = -39.7%

  • Dividend yield 5 year average = 6.3%
  • Dividend rate = $ 2.90
  • Payout ratio = 158%
  • Dividend growth rate 3 year avg = 10.92%
  • Dividend growth rate 5 year avg = 76.44%
  • Paying dividends since = 1974
  • Total return last 3 years = 68.13%
  • Total return last 5 years = 7.18%

Notes

It has a very strong levered free cash flow rate of $3.22 billion and total cash flows from operating activities have been on the rise for the past 3 years, going on 4 soon.

Conclusion

The markets are rather overbought, and the charts are suggesting that a pullback is well overdue. If the SPX closes below 1,300 on a weekly basis, it should result in a test of the 1,250 area with a possible overshoot to 1,200. After this pullback the markets are expected to mount a rather strong counter-rally. Long-term investors should wait for a strong pullback before deploying large sums of money into the market.

All dividend history charts 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.

Disclaimer: This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you 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.