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Today, we are going to look at five stocks that offer high yields, but investors should not base their investment decision on yield alone. It would be wise to get a handle on some of the key metrics mentioned below. It is okay to deploy some capital into riskier plays but betting the house is asking for trouble.

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 sometime. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever; 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

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 shareholder 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.

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 $5, then the 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.

Quick ratio or acid test is obtained by adding cash and cash equivalents plus marketable securities and accounts receivable and dividing them by current liabilities. It is a measure of a company's ability to use its quick assets (assets that can be sold immediately at close to book value) to pay off current liabilities immediately. A company with a quick ratio of less than 1 cannot pay back its current liabilities.

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 5 Dividend Stocks With Yields As High As 7.8%

Our favourite play on the list is Bank of Nova Scotia Halifax (NYSE: BNS) and we like it for the following reasons.

  1. It has a five-year dividend growth rate of 7.81%
  2. A five-year dividend average of 4.7%
  3. A ROE of 17.1%
  4. Net income has been increasing for the past three years.
  5. Total cash flow has turned positive after being negative for two years in a row
  6. It has been paying dividends since 1834
  7. It has three-year total return of 141%

$100K invested in BNS for 10 years would have grown to $270,406.00

Stock

Dividend Yield (%)

Market Cap

Forward PE

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

NZT

11.80

3.48B

15.88

1.36B

-5.10%

1.00

4.12B

1.11B

ARR

18.40

610.32M

5.76

61M

N/A

0.23

-18.98M

77.12M

DCT

5.00

1.39B

14.44

152.76M

10.40%

1.47

250.67M

98.50M

UVV

4.20

1.09B

N/A

292.48M

-3.50%

0.96

2.49B

247.38M

BNS

3.90

56.03B

9.88

16.07B

10.50%

1.24

16.18B

1.06B

Telecom Corp. of New Zealand L

Industry: Services

Net income for the past three years

2009 = $258.88 million

2010 = $261 million

2011 = $135 million

Total cash flow from operating activities

2009 = $1.01 billion

2010 = $1.22 billion

2011 = $1.12 billion

Key Ratios

P/E Ratio = 24

P/E High - Last 5 Years = 27.6

P/E Low - Last 5 Years = 2.1

Price to Sales = 0.81

Price to Book = 1.8

Price to Tangible Book = 3.43

Price to Cash Flow = 3.5

Price to Free Cash Flow = 38.9

Quick Ratio = 0.6

Current Ratio = 0.7

LT Debt to Equity = 0.74

Total Debt to Equity = 0.91

Interest Coverage = 2.4

Inventory Turnover = 32.6

Asset Turnover = 0.8

ROE = 6.84%

Return on Assets = 5.88%

200-day moving average = 9.61

Current Ratio = 0.67

Total debt = 2.27B

Book value = 4.95

Qtrly Earnings Growth = -100%

Dividend yield 5-year average = 12.6%

Dividend rate = $ 0.71

Payout ratio = 157%

Dividend growth rate 3-year avg = -6.6%

Dividend growth rate 5-year avg = -24.04%

Consecutive dividend increases = 0 years

Paying dividends since = 1991

Total return last 3 years = 66.99%

Total return last 5 years = -15.01%

Warning

Quarterly earnings growth has plunged (-100%). Net income has been dropping for three years in a row. On the positive side total cash flow from operating activities has remained somewhat stable and has been more than enough to cover the dividend payments very easily for the past three years. Dividend history is also very erratic as indicated by the graph above.

ARMOUR Residential REIT Inc.

Industry: REITs

Net income for the past three years

2009 = $-1.15 million

2010 = $6.54 million

2011= It stands at $-26 million

Total cash flow from operating activities

2009 = $-2.61 million

2010 = $9.17 million

2011= It stands at $51.7 million and could top the $90 million mark

Key Ratios

P/E Ratio = 6.7

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

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

Price to Sales = 12.49

Price to Book = 1.06

Price to Tangible Book = 1.06

Price to Cash Flow = -87.9

Price to Free Cash Flow = 51.3

Quick Ratio = 0

Current Ratio = 0.1

LT Debt to Equity = 0

Total Debt to Equity = 9.09

Interest Coverage = N.A.

Inventory Turnover = N.A.

Asset Turnover = 0

ROE = -8.19%

Return on Assets = -0.74%

200-day moving average = 7.12

Current Ratio = 0.08

Total debt = 5.32B

Book value = 6.78

Qtrly Earnings Growth = N/A

Dividend yield 5-year average = 0%

Dividend rate = $ 1.32

Payout ratio = 135%

Dividend growth rate 3-year avg = N/A

Dividend growth rate 5-year avg = N/A

Consecutive dividend increases = 0 years

Paying dividends since = 2010

Total return last 3 years = 11.53%

Total return last 5 years = N/A

Warnings

Net income has plunged in 2011, though total cash flow from operating activities has increased and is more than enough to cover the dividend payments.

DCT Industrial Trust Inc

Industry: REITs

Net income for the past three years

2008 = $9.49 million

2009 = $-18.59 million

2010 = $-37.83 million

2011= it stands at $-28 million and could top the $-40 million mark.

Total cash flow from operating activities

2008 = $128.35 million

2009 = $109.75 million

2010 = $91.01 million

2011= It stands at $78 million and could top the $107 million mark.

Key Ratios

P/E Ratio = N.A.

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

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

Price to Sales = 5.5

Price to Book = 1.13

Price to Tangible Book = 1.13

Price to Cash Flow = -33.5

Price to Free Cash Flow = -8.1

Quick Ratio = N.A.

Current Ratio = N.A.

LT Debt to Equity = 1.01

Total Debt to Equity = 1.05

Interest Coverage = 0.3

Inventory Turnover = N.A.

Asset Turnover = 0.1

ROE = -2.92%

Return on Assets = 0.61%

200-day moving average = 4.81

Current Ratio = 0.61

Total debt = 1.31B

Book value = 4.98

Qtrly Earnings Growth = N/A

Dividend yield 5-year average = 7.6%

Dividend rate = $ 0.28

Dividend growth rate 3-year avg = -17.7%

Dividend growth rate 5-year avg = 46%

Consecutive dividend increases = 0 years

Paying dividends since = 2006

Total return last 3 years = 77.53%

Total return last 5 years = -34.92%

Warning

Net income has been plunging for two years in a row and is on course to do so for the third year in a row. It appears that total cash flow from operating activities has stabilized and will come in higher for 2011 than 2010 and so far it appears to be more than enough to cover the dividend payments. Dividends took a big hit after 2008 but appear to have somewhat stabilized since 2009.

Universal Corp.

Industry: Tobacco Products

Net income for the past three years

2009 = $131.74 million

2010 = $168.4 million

2011 = $156.57 million

Total cash flow from operating activities

2009 = $99.07 million

2010 = $162.24 million

2011 = $54.22 million

Key Ratios

P/E Ratio = 16.7

P/E High - Last 5 Years = 54.4

P/E Low - Last 5 Years = 5.1

Price to Sales = 0.44

Price to Book = 1.15

Price to Tangible Book = 1.29

Price to Cash Flow = 9.2

Price to Free Cash Flow = 7.1

Quick Ratio = 0.8

Current Ratio = 3

LT Debt to Equity = 0.32

Total Debt to Equity = 0.64

Interest Coverage = 7.5

Inventory Turnover = 1.8

Asset Turnover = 1

ROE = 8.21%

Return on Assets = 6.43%

200 day moving average = 41.49

Current Ratio = 2.99

Total debt = 598.44M

Book value = 40.46

Qtrly Earnings Growth = N/A

Dividend yield 5-year average = 4.5%

Dividend rate = $ 1.96

Payout ratio = 68%

Dividend growth rate 3-year avg = 2.16%

Dividend growth rate 5-year avg = 2.06%

Consecutive dividend increases = 41 years

Paying dividends since = 1927

Total return last 3 years = 70.99%

Total return last 5 years = 14.79%

Notes

This would have been our favorite play but we became a little concerned when we noticed that total cash flow from operating activities in 2011 was not enough to cover the dividend payments; there was a short fall of roughly $ 6million. Net income took a hit in 2011 but operating cash flow took the biggest hit, dropping over 51% below 2010 levels. Its current ratio and quick ratio are also slightly worrisome, especially in light of the fact that operating cash flows took such a big hit in 2011.

Bank of Nova Scotia Halifax

Industry : Banking

Net income for the past three years

2009 = $3.3 billion

2010 = $4.17 billion

2011 = $5.21 billion

Total cash flow from operating activities

2009 = $-10 billion

2010 = $-2.8 billion

2011 = $1.07 billion

Key Ratios

P/E Ratio = 11.1

P/E High - Last 5 Years = 22.5

P/E Low - Last 5 Years = 6.3

Price to Sales = 2.1

Price to Book = 1.98

Price to Tangible Book = 1.98

Price to Cash Flow = 11.3

Price to Free Cash Flow = N.A.

Quick Ratio = N.A.

Current Ratio = N.A.

LT Debt to Equity = 0.21

Total Debt to Equity = 0.75

Interest Coverage = 1.8

Inventory Turnover = N.A.

Asset Turnover = 0

ROE = 17.1%

Return on Assets = 0.96%

200-day moving average = 51.63

Current Ratio = N/A

Total debt = 94.78B

Book value = 26

Qtrly Earnings Growth = 12%

Dividend yield 5-year average = 4.7%

Dividend rate = $ 2.08

Payout ratio = 44%

Dividend growth rate 3-year avg = 2.38%

Dividend growth rate 5-year avg = 7.81%

Paying dividends since = 1834

Total return last 3 years = 141%

Total return last 5 years = 40.44%

Source: 5 Interesting Plays With Yields As High As 18%

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.All trailing returns charts sourced from Morningstar.com and all dividend history charts sourced from dividata.com