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Investors would do well to pay attention to the following key metrics as they could prove to be very useful in the selection process.

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: 5 Plays With Yields As High As 14.0%

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 range.

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.

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 Plays With Healthy Dividends As High As 8.7%

Lockheed Martin Corp. (LMT) is our favorite play on the list for the following reasons

  1. Five year dividend growth rate of 19%
  2. Five year dividend average of 3.4%
  3. A sustainable payout ratio of 42%
  4. A ROE of 113%
  5. Though it carries about 6 billion in Debt, it has a very good interest ratio of 11.8, which means that it covers interest expenses 11.8 times with operating profits
  6. A decent current ratio of 1.2
  7. Has consecutively increased its dividends for roughly 9 years
  8. Has a very healthy free levered free cash flow of $2.76 billion
  9. The dividend is easily covered by earnings and levered free cash flow.

Stock

Dividend Yield (%)

Market Cap

Forward PE

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

FTE

9.00

40.21B

8.39

19.55B

1.90%

0.76

60.11B

17.75B

HTGC

9.00

428.12M

8.95

51.83M

19.40%

1.39

75.46M

-120.17M

LMT

4.80

26.71B

9.87

4.78B

-4.60%

0.89

46.50B

4.25B

UBSI

4.30

1.43B

15.28

191M

27.30%

1.01

294.42M

109M

CHL

3.50

206.05B

N/A

39.24B

8.80%

0.49

80.16B

36.62B

France Telecom S.A. (FTE)

Industry: Services

  • Net income for the past three years
  • 2008 = $6.34 billion
  • 2009 = $551 million
  • 2010 = $-4 million

Total cash flow from operating activities

  • 2008 = $21.15 billion
  • 2009 = $20.1 billion
  • 2010 = $16.89 billion

Key Ratios

  • P/E Ratio = 6.2
  • P/E High - Last 5 Yrs = 17.9
  • P/E Low - Last 5 Yrs = 7.1
  • Price to Sales = 0.66
  • Price to Book = 0.99
  • Price to Tangible Book = -2.4
  • Price to Cash Flow = 2.7
  • Price to Free Cash Flow = 9
  • Quick Ratio = 0.5
  • Current Ratio = 0.6
  • LT Debt to Equity = 1.12
  • Total Debt to Equity = 1.31
  • Interest Coverage = N.A.
  • Inventory Turnover = N.A.
  • Asset Turnover = 0
  • ROE = 9.72%
  • Return on Assets = 5.54%
  • 200 day moving average = 1.63M
  • Current Ratio = 0.61
  • Total debt = 48.60B
  • Book value = 13.93
  • Qtrly Earnings Growth = -47.8%

  • Dividend yield 5 year average = 9.2%
  • Dividend rate = $ 1.94
  • Payout ratio = 61%
  • Dividend growth rate 3 year avg = -10.26%
  • Dividend growth rate 5 year avg = 15.32%
  • Consecutive dividend increases = 2 years
  • Paying dividends since = 1998
  • Total return last 3 years = -9.48%
  • Total return last 5 years = -10.92%

Warning

Net income plunged in 2010 and operating cash flow has been declining for the past 3 years.

Hercules Technology Growth Cap (HTGC)

Industry: Holding and other Investment Offices

Net income for the past three years

  • 2008 = $21 million
  • 2009 = $13.58 million
  • 2010 = $4.99 million
  • 2011= it stands at $30 million and could come in as high as $35 million

Total cash flow from operating activities

  • 2008 = $-27.53 million
  • 2009 = $225.93 million
  • 2010 = $-93.25 million
  • 2011=$-72 million

Key Ratios

  • P/E Ratio = 9.9
  • P/E High - Last 5 Yrs = 96.7
  • P/E Low - Last 5 Yrs = 7.1
  • Price to Sales = 6.63
  • Price to Book = 1.01
  • Price to Tangible Book = 1.01
  • Price to Cash Flow = 10.4
  • Price to Free Cash Flow = -2.8
  • Quick Ratio = N.A.
  • Current Ratio = N.A.
  • LT Debt to Equity = 0.61
  • Total Debt to Equity = 0.61
  • Interest Coverage = 4.7
  • Inventory Turnover = N.A.
  • Asset Turnover = 0.1
  • ROE = 10.8%
  • Return on Assets = 5.39%
  • 200 day moving average = 9.35
  • Current Ratio = 13.02
  • Total debt = 258.83M
  • Book value = 9.8
  • Qtrly Earnings Growth = N/A

  • Dividend yield 5 year average = 12%
  • Dividend rate = $ 0.88
  • Payout ratio = 87%
  • Dividend growth rate 3 year avg = -11.04%
  • Dividend growth rate 5 year avg = -1.7%
  • Consecutive dividend increases = 1 years
  • Paying dividends since = 2005
  • Total return last 3 years = 89.59%
  • Total return last 5 years = 5%

Notes

Erratic divided history. Stifel upgraded Hercules Technology based on significant portfolio growth and increased VC activity. Price target is $11.50. Net income appears to be improving but total cash flow from operating activities is still negative and worrisome as this is what the company uses to pay its bills with. Though, it does have a levered free cash flow rate of $36 million.

Lockheed Martin Corp.

Industry: Defense

It has a levered free cash flow of $2.76 billion and a current ratio of 1.2.

Net income for the past three years

  • 2008 = $3.22 billion
  • 2009 = $3.03 billion
  • 2010 = $2.93 billion

Total cash flow from operating activities

  • 2008 = $4.43 billion
  • 2009 = $3.18 billion
  • 2010 = $3.55 billion

Key Ratios

  • P/E Ratio = 10.7
  • P/E High - Last 5 Yrs = 16
  • P/E Low - Last 5 Yrs = 7.4
  • Price to Sales = 0.58
  • Price to Book = 9.18
  • Price to Tangible Book = -4.06
  • Price to Cash Flow = 7.2
  • Price to Free Cash Flow = 13.6
  • Quick Ratio = 0.9
  • Current Ratio = 1.2
  • LT Debt to Equity = 2.22
  • Total Debt to Equity = 2.39
  • Interest Coverage = 11.8
  • Inventory Turnover = 21.9
  • Asset Turnover = 1.3
  • ROE = 113.27%
  • Return on Assets = 6.82%
  • 200 day moving average = 76.26
  • Current Ratio = 1.16
  • Total debt = 6.46B
  • Book value = 3.12
  • Qtrly Earnings Growth = -30.5%

  • Dividend yield 5 year average = 3.4%
  • Dividend rate = $ 4.00
  • Payout ratio = 42%
  • Dividend growth rate 3 year avg = 21.27%
  • Dividend growth rate 5 year avg = 19.08%
  • Consecutive dividend increases = 9 years
  • Total return last 3 years = 13.05%
  • Total return last 5 years = -2.45%

United Bankshares, Inc. (UBSI)

Industry: Banking

Net income for the past three years

  • 2008 = $86.96 million
  • 2009 = $67.3 million
  • 2010 = $71.95 million

Total cash flow from operating activities

  • 2008 = $113.94 million
  • 2009 = $53.66 million
  • 2010 = $100.83 million

Key Ratios

  • P/E Ratio = 17.8
  • P/E High - Last 5 Yrs = 26.3
  • P/E Low - Last 5 Yrs = 8.5
  • Price to Sales = 3.64
  • Price to Book = 1.48
  • Price to Tangible Book = 2.39
  • Price to Cash Flow = 19.2
  • Price to Free Cash Flow = 28.4
  • Quick Ratio = N.A.
  • Current Ratio = N.A.
  • LT Debt to Equity = 0.37
  • Total Debt to Equity = 0.37
  • Interest Coverage = 2.8
  • Inventory Turnover = N.A.
  • Asset Turnover = 0
  • ROE = 8.58%
  • Return on Assets = 0.97%
  • 200 day moving average = 8.63M
  • Current Ratio = N/A
  • Total debt = 600.13M
  • Book value = 19.3
  • Qtrly Earnings Growth = 5%
  • Dividend yield 5 year average = 4.4%
  • Dividend rate = $ 1.24
  • Payout ratio = 75%
  • Dividend growth rate 3 year avg = 1.42%
  • Dividend growth rate 5 year avg = 2.2%
  • Consecutive dividend increases = 0 years
  • Paying dividends since = 1990
  • Total return last 3 years = 53.31%
  • Total return last 5 years = -6.15%

Notes

Net income and total cash flow from operating activities are improving again. It also has a very nice dividend history.

China Mobile Limited (CHL)

Industry: Communications

It has a very healthy strong levered free cash flow rate of $4.7 billion and a current ratio of 1.30.

Key Ratios

  • P/E Ratio = 11.5
  • P/E High - Last 5 Yrs = 35.5
  • P/E Low - Last 5 Yrs = 8.5
  • Price to Sales = 2.8
  • Price to Book = 2.19
  • Price to Tangible Book = 2.33
  • Price to Cash Flow = 6.6
  • Price to Free Cash Flow = 18.5
  • Quick Ratio = 1.2
  • Current Ratio = 1.3
  • LT Debt to Equity = 0.05
  • Total Debt to Equity = 0.05
  • Interest Coverage = N.A.
  • Inventory Turnover = N.A.
  • Asset Turnover = 0
  • ROE = 21.47%
  • Return on Assets = 11.06%
  • 200 day moving average = 48.93
  • Current Ratio = 1.3
  • Total debt = 4.58B
  • Book value = 24.11
  • Qtrly Earnings Growth = 6.3%

  • Dividend yield 5 year average = 2.9%
  • Dividend rate = $ 1.84
  • Payout ratio = 37%
  • Dividend growth rate 3 year avg = 4.5%
  • Dividend growth rate 5 year avg = 24.19%
  • Consecutive dividend increases = 2 years
  • Paying dividends since = 2003
  • Total return last 3 years = 25.74%
  • Total return last 5 years = 25.15%

Notes

It has a very strong positive levered free cash flow rate of $4.71 billion and decent dividend history.

Conclusion

While chasing the the markets might appear to be the right thing to do now; the prudent move is to wait for strong pullbacks before deploying large sums of cash into the market. Patient traders are usually well rewarded in the long run. In our view, the market is extremely overbought and begging for a reason to pull back. In the mean time investors can sell covered calls and or naked puts (if you are bullish on the stock) to open up secondary stream of income.

The growth of $10,000 graphs sourced from Morningstar.com. 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: 5 Great Plays With Yields As High As 9.0%