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Investors should familiarize themselves with the following ratios as they could prove to be extremely useful and helpful in the selection process. Understanding what these ratios mean could make the difference between spotting a winner or a loser

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, 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 as this cannot last forever; 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 Stocks Sporting Lofty Yields As High As 16%

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

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.

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 pay on this list is Reynolds American Inc (RAI). We like it for the following reasons

Net income has been increasing for the past 3 years and is on course to increase for the 4th year

It has an ROE of 19.9%

A five year dividend growth rate of 9.5%

A five year dividend average of 6.10

Total cash flow from operating activities has also been growing for the past 3 years

Payout ratio is still below 100%

It has a total return for the past 3 years of 137%

It has consecutively increased the dividend for 7 years

It has interest coverage rate of 10.50 indicating that the debt burden is not such a liability.

It has a total debt to equity ratio of 0.55

The dividend was recently increased from 53 cents to 56 cents.

100K invested in RAI for 10 years would have grown to 395,685.00

Stock

Dividend Yield

Market Cap

Forward PE

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

RAI

5.70%

23.1B

13.51

2.66B

-1.70%

0.63

8.54B

1.11B

OTTR

5.4%

795.53M

21.84

154.22M

21.60%

1.06

1.28B

124.51M

PSEC

11.8%

1.16B

9.78

N/A

57.20%

0.85

189.61M

-701.36M

ORI

7.10

2.62B

12.34

-218.50M

11.20%

0.86

4.65B

N/A

VIP

14.0%

17.59B

8.77

7.19B

115.70%

0.00

17.18B

5.00B

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

  1. 2008= $1.33 billion
  2. 2009 =$ 962 million
  3. 2010 = $1.13 billion
  4. 2011= it stands at $1.024 billion and could potentially top the $1.4 billion mark.

Total cash flow from operating activities

  1. 2008= $1.31 billion
  2. 2009 =$1.45 billion
  3. 2010 = $1.26 billion
  4. 2011= It stands at roughly $841 million.

Key Ratios

P/E Ratio = 17.40

P/E High - Last 5 Yrs = 17.60

P/E Low - Last 5 Yrs = 8.20

Price to Sales = 2.70

Price to Book = 3.44

Price to Tangible Book = -5.84

Price to Cash Flow = 15.70

Price to Free Cash Flow = - 923.10

Quick Ratio = 0.5

Current Ratio = 1.10

LT Debt to Equity = 0.48

Total Debt to Equity = 0.55

Interest Coverage = 10.50

Inventory Turnover = 4.60

Asset Turnover = 0.50

• ROE 19.98%

• Return on assets 9.36%

• 200 day moving average 38.52

• 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 7 years

• Paying dividends since 1999

• Total return last 3 years 137%

• Total return last 5 years 50%

New developments

Dividend was increased from 53 cents to 56 cents.

Otter Tail Corp. (OTTR)

Industry: Electric Utilities

Net income for the past two years

2009 = $26.04 million

2010 = $-1.35 million

2011= It stands at $31 million and could top the $37 million mark.

Total cash flow from operating activities

2009 = $162.75 million

2010 = $105.02 million

2011=it stands at $80 million and could top the $120 million mark.

Key Ratios

P/E Ratio = 25.1

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

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

Price to Sales = 0.65

Price to Book = 1.27

Price to Tangible Book = 1.47

Price to Cash Flow = 7.2

Price to Free Cash Flow = -59.3

Quick Ratio = 0.9

Current Ratio = 1.7

LT Debt to Equity = 0.69

Total Debt to Equity = 0.76

Interest Coverage = 1.8

Inventory Turnover = 12

Asset Turnover = 0.7

ROE = 4.01%

Return on Assets = 2.56%

200 day moving average = 20.57

Current Ratio = 1.72

Total debt = 475.82M

Book value = 17.36

Qtrly Earnings Growth = 4.4%

Dividend yield 5 year average = 5.1%

Dividend rate = $ 1.19

Payout ratio = 135%

Dividend growth rate 5 year avg = 0.71%

Consecutive dividend increases = 0 years

Paying dividends since = 1990

Total return last 3 years = 26.54%

Total return last 5 years = -13.68%

Prospect Capital Corporation (PSEC)

Industry: Holding and other Investment Offices

Net income for the past three years

2009 = $35.11 million

2010 = $19.63 million

2011 = $118.24 million

Total cash flow from operating activities

2009 = $-74 million

2010 = $54.84 million

2011 = $-581.61 million

Key Ratios

P/E Ratio = 7.5

P/E High - Last 5 Yrs = 41.3

P/E Low - Last 5 Yrs = 5.2

Price to Sales = 5.5

Price to Book = 1.01

Price to Tangible Book = 1.01

Price to Cash Flow = 8.7

Price to Free Cash Flow = -1.4

Quick Ratio = N.A.

Current Ratio = N.A.

LT Debt to Equity = 0

Total Debt to Equity = 0

Interest Coverage = 6.5

Inventory Turnover = N.A.

Asset Turnover = 0.2

ROE = 13.66%

Return on Assets = 6.03%

200 day moving average = 12.02M

Current Ratio = 0.4

Total debt = 556.00M

Book value = 10.41

Qtrly Earnings Growth = 56%

Dividend yield 5 year average = 12.4%

Dividend rate = $ 1.22

Payout ratio = 87%

Dividend growth rate 3 year avg = -8.02%

Dividend growth rate 5 year avg = -0.56%

Consecutive dividend increases = 0 years

Paying dividends since = 2004

Total return last 3 years = 34.33%

Total return last 5 years = 0.63%

Warning

Cash flow from operating activities was negative for 2011; this is disturbing to some degree because it shows that the company is not generating enough cash to cover the dividend payment. Though on the positive net income is increasing and it does have a small positive levered free cash flow rate of $81.65 million.

Old Republic International Cor (OR)

Industry : General Insurance

Net income for the past three years

2008 = $-558.3 million

2009 = $-99.1 million

2010 = $30.1 million

2011= it stands at $-195 million.

Total cash flow from operating activities

2008 = $565.7 million

2009 = $532.9 million

2010 = $-282.2 million

2011= it stands at $-127 million.

Key Ratios

P/E Ratio = N.A.

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

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

Price to Sales = 0.57

Price to Book = 0.69

Price to Tangible Book = 0.69

Price to Cash Flow = -12.6

Price to Free Cash Flow = -6.7

Quick Ratio = N.A.

Current Ratio = N.A.

LT Debt to Equity = 0.24

Total Debt to Equity = 0.24

Interest Coverage = N.A.

Inventory Turnover = N.A.

Asset Turnover = 0.3

ROE = -3.56%

Return on Assets = -0.93%

200 day moving average = 9.3

Current Ratio = N/A

Total debt = 912.80M

Book value = 14.76

Qtrly Earnings Growth = N/A

Dividend yield 5 year average = 5.8%

Dividend rate = $ 0.70

Payout Ratio =

Dividend growth rate 3 year avg = 1.47%

Dividend growth rate 5 year avg = -0.41%

Consecutive dividend increases = 30 years

Paying dividends since = 1942

Total return last 3 years = 18.8%

Total return last 5 years = -39.84%

Warning

Net income has plunged and turned negative and more importantly total cash flow from operating activities is negative for 2010 and will most likely remain negative for 2011. Cash flow is what a company's uses to pay its bills.

VimpelCom Ltd. (VIP)

Industry : Services

Net income for the past two years

2009 = $1.13 billion

2010 = $1.68 billion

Total cash flow from operating activities

2009 = $3.52 billion

2010 = $3.68 billion

Key Ratios

P/E Ratio = 10.5

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

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

Price to Sales = 1.02

Price to Book = 1.15

Price to Tangible Book = -1.36

Price to Cash Flow = 2.7

Price to Free Cash Flow = -32.5

Quick Ratio = 0.7

Current Ratio = 1.1

LT Debt to Equity = 1.6

Total Debt to Equity = 1.71

Interest Coverage = 2.2

Inventory Turnover = 19

Asset Turnover = 0.4

ROE = 9.75%

Return on Assets = 5.85%

200 day moving average = 10.69

Current Ratio = 1.12

Total debt = 26.00B

Book value = 9.41

Qtrly Earnings Growth = -79%

Dividend yield 5 year average = N/A

Dividend rate = $ 0.84

Payout ratio = 70%

Payout Ratio = 70%

Consecutive dividend increases = 2 years

Paying dividends since = 2007

Warning

While net income has been increasing for the past two years, the quarterly earnings growth has plunged (-79%) and it has a very erratic dividend history.

All 1 year total return performance charts sourced from Ycharts.com and all dividend history charts sourced from dividata.com

Source: 5 Plays With Yields As High As 14.0%

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 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.