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In Part III, we examined five REITs with yields as high as 18%; today, we are going to take a look at another set of REITs, but before we go any further investors should take the time to understand the following key ratios as many of them have been used in this article; getting a handle on these ratios could make the difference of getting into a winner or a loser.

Enterprise value is a combination of the market cap, debt, minority interests, preferred shares less total cash and cash equivalents. This provides a better picture because it is a more accurate representation of a company's value contrary to simply looking at the Market cap.

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

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. Individuals searching for other ideas might find this article to be of interest 5 Plays With Yields As High As 14.0%.

Turnover ratio lets you know the number of times a company's inventory is replaced in a given time period. It is calculated by dividing the cost of goods sold by average inventory during the time period studied. A high turn over ratio indicates that a company is producing and selling its good and services very quickly.

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.

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.

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

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%.

It was a tough choice to choose between MFA and OHI but in the end, we selected OHI because it's 10 year rate of return was far superior to that of MFA.

Omega Healthcare Investors, In (NYSE: OHI) is our favourite play for the following reasons:

  • It has a five year dividend rate of 6.9%
  • A five year dividend growth rate of 15.37%
  • It has consecutively increased the dividend for 8 years
  • It has a decent quarterly earnings growth rate of 26%
  • It sports a total 3 year return of 61%
  • It has a levered free cash flow rate of $ 135 million
  • Total cash flow from operating activities is on course to increase for 4 years in a row

100K invested in OHI for 10 years would have grown to 321,422.85

MFA Financial, Inc. (NYSE: MFA) is our second favourite play on the list for the following reasons:

  • 5 year dividend average of 11.2%
  • 5 year dividend growth rate of 38%
  • It has consecutively increased its dividends for 6 years
  • Has a total 3 year return of 79%
  • A decent ROE of 12.47%
  • A quarterly earnings growth rate of 8.4% and a quarterly revenue growth rate of 10.4%
  • It has a decent free cash flow rate of $320 million
  • 100K invested in MFA for 10 years would have grown to 168K.

Stock

Dividend Yield (%)

Market Cap

Forward PE

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

IRET

7.00%

646M

11.48

130.17M

3.10%

0.41

239.69M

64.40M

OHI

7.70

2.21B

10.97

253.82M

4.40%

0.98

283.31M

176.14M

NYMT

14.10

78.36M

8.35

13.14M

-78.00%

0.96

16.10M

6.04M

EFC

8.30

318.44M

6.48

27.8M

40.60%

0.00

54.15M

-531.42M

MFA

13.40

2.65B

7.67

472.16M

10.50%

0.41

338.28M

304.22M

Investors Real Estate Trust (NASDAQ: IRET)

Industry : REITs

It has a free cash flow of $-58 million and a rather low interest coverage of 1.10

Net income for the past three years

2009 = $8.53 million

2010 = $4.01 million

2011 = $20.09 million

Total cash flow from operating activities

2009 = $60.14 million

2010 = $61.42 million

2011 = $58.78 million

Key Ratios

P/E Ratio = 49.5

P/E High - Last 5 Yrs = 326.7

P/E Low - Last 5 Yrs = 36.2

Price to Sales = 2.6

Price to Book = 1.63

Price to Tangible Book = 1.88

Price to Cash Flow = 40

Price to Free Cash Flow = -6.5

Quick Ratio = N.A.

Current Ratio = N.A.

LT Debt to Equity = 2.72

Total Debt to Equity = 2.84

Interest Coverage = 1.1

Inventory Turnover = N.A.

Asset Turnover = 0.1

ROE = 0.61%

Return on Assets = 2.64%

200 day moving average = 7.41

Current Ratio = 1.19

Total debt = 1.09B

Book value = 4.57

Qtrly Earnings Growth = -77.9%

Dividend yield 5 year average = 7.4%

Dividend rate = $ 0.60

Payout ratio = 430%

Dividend growth rate 3 year avg = -3.49%

Dividend growth rate 5 year avg = 2.68%

Consecutive dividend increases = 0 years

Paying dividends since = 1997

Total return last 3 years = -5.61%

Total return last 5 years = 3.61%

Warning

While net income increased for the past 3 years, total cash flow from operating activities declined in 2011; they were also not enough to cover the dividend payment in 2011. IRET also sports a negative 3, 5 year dividend growth rate and the quarterly earnings growth is -77%/. The total returns for the past 3 and 5 years are also negative. Investors with a low risk tolerance should avoid this play.

Omega Healthcare Investors

Industry : REITs

Levered Free Cash Flow: 135.34M

Net income for the past three years

2008 = $78.14 million

2009 = $82.12 million

2010 = $58.44 million

2011= It stand at $33.1 million and could come in as high as $51 million.

Total cash flow from operating activities

2008 = $89.33 million

2009 = $147.23 million

2010 = $157.57 million

2011= It stands at $129 and could come in as high as $180.

Key Ratios

P/E Ratio = 73.5

P/E High - Last 5 Yrs = 46.1

P/E Low - Last 5 Yrs = 10

Price to Sales = 7.62

Price to Book = 2.45

Price to Tangible Book = 2.45

Price to Cash Flow = 64.1

Price to Free Cash Flow = -333

Quick Ratio = N.A.

Current Ratio = N.A.

LT Debt to Equity = 1.36

Total Debt to Equity = 1.36

Interest Coverage = 1.4

Inventory Turnover = N.A.

Asset Turnover = 0.1

ROE = 3.99%

Return on Assets = 4.42%

200 day moving average = 18.12

Current Ratio = 1.11

Total debt = 1.22B

Book value = 8.69

Qtrly Earnings Growth = 26%

Dividend yield 5 year average = 6.9%

Dividend rate = $ 1.64

Payout ratio = 524%

Dividend growth rate 3 year avg = 10.01%

Dividend growth rate 5 year avg = 15.37%

Consecutive dividend increases = 8 years

Paying dividends since = 1992

Total return last 3 years = 61.81%

Total return last 5 years = 53.5%

Notes

Net income is on course to decline for 3 years in a row. Total cash flow from operating activities is on course to rise for 3 years in a row. It has a decent quarterly earnings growth rate of 26% and it has increased dividends for 8 years in a row. 100k Invested for 10 years would have grown to 472K.

New York Mortgage Trust Inc (NASDAQ: NYMT)

Industry : REITs

It has Free Cash Flow $ 6million and a interest coverage ratio of 2.4

Net income for the past three years

2008 = $-24.11 million

2009 = $11.67 million

2010 = $6.81 million

2011= It stands at $6.66 million

Total cash flow from operating activities

2008 = $6.27 million

2009 = $11.78 million

2010 = $-0.31 million

2011= It stands at $7.4 million and could top the $11 million mark.

Key Ratios

P/E Ratio = 8.6

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

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

Price to Sales = 3.25

Price to Book = 1.05

Price to Tangible Book = 1.05

Price to Cash Flow = 10.2

Price to Free Cash Flow = 32.6

Quick Ratio = N.A.

Current Ratio = N.A.

LT Debt to Equity = 3.29

Total Debt to Equity = 4.77

Interest Coverage = 2.4

Inventory Turnover = N.A.

Asset Turnover = 0.1

ROE = 10.37%

Return on Assets = 1.61%

200 day moving average = 7.03

Current Ratio = 1.68

Total debt = 363.17M

Book value = 6.75

Qtrly Earnings Growth = N/A

Dividend yield 5 year average = 19.2%

Dividend rate = $ 0.90

Payout ratio = 123%

Dividend growth rate 3 year avg = 43.35%

Dividend growth rate 5 year avg = -26.1%

Consecutive dividend increases =3 years

Paying dividends since = 2008

Total return last 3 years = 298.78%

Total return last 5 years = -62.98%

Warning

Rather erratic dividend history. Net income dropped by 50% in 2010 and has yet to match the levels of 2009. It does have a positive free cash flow and after 2007 dividends have generally been trending higher. Only investors willing to take on a bit of extra risk should consider this play.

Ellington Financial LLC (NYSE: EFC)

Industry : Property, Real Estate & Development

It has a free Cash Flow $-530 million

Net income

2009 = $93.39 million

2010 = $40.58 million

2011= it stands at $-2.5 million and could the losses could top the $-4 million mark.

Total cash flow from operating activities

2009 = $-216.52 million

2010 = $-347.55 million

2011= It stands at $30 million and could come in at $-40 million.

Key Ratios

P/E Ratio = 14.4

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

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

Price to Sales = 7.59

Price to Book = 0.85

Price to Tangible Book = 0.85

Price to Cash Flow = 14.6

Price to Free Cash Flow = -0.6

Quick Ratio = N.A.

Current Ratio = N.A.

LT Debt to Equity = 0

Total Debt to Equity = 0

Interest Coverage = 4.6

Inventory Turnover = N.A.

Asset Turnover = 0

ROE = 6.37%

Return on Assets = 0.89%

200 day moving average = 18.02

Current Ratio = 0.57

Total debt = 919.20M

Book value = 22.84

Qtrly Earnings Growth = N/A

Dividend yield 5 year average = 0%

Dividend rate = $ 2.51

Payout ratio = 217%

Dividend growth rate 3 year avg = 0%

Dividend growth rate 5 year avg =

Consecutive dividend increases = 1 years

Paying dividends since = 2010

Total return last 3 years = N/A

Total return last 5 years = N/A

Warning

Net income is plunging, operating cash flow is still negative and it also a negative free cash flow rate. Only speculators should consider this stock.

MFA Financial, Inc.

Industry : REITs

It has a free cash flow rate of $302 million.

Net income for the past three years

2008 = $45.8 million

2009 = $268.19 million

2010 = $269.77 million

2011= It stands at $245 million and could top the $329 million level.

Total cash flow from operating activities

2008 = $186.43 million

2009 = $269.97 million

2010 = $245.94 million

2011= It stands at $245 million and could top the $331 million mark.

Key Ratios

P/E Ratio = 8

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

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

Price to Sales = 5.33

Price to Book = 1

Price to Tangible Book = 1.01

Price to Cash Flow = 8.9

Price to Free Cash Flow = -4.2

Quick Ratio = N.A.

Current Ratio = N.A.

LT Debt to Equity = 0.36

Total Debt to Equity = 0.36

Interest Coverage = 3.1

Inventory Turnover = N.A.

Asset Turnover = 0

ROE = 12.47%

Return on Assets = 3%

200 day moving average = 7

Current Ratio = 0.07

Total debt = 9.11B

Book value = 7.43

Qtrly Earnings Growth = 8.4%

Dividend yield 5 year average = 11.2%

Dividend rate = $ 0.99

Payout ratio = 102%

Dividend growth rate 3 year avg = 8.35%

Dividend growth rate 5 year avg = 38.46%

Consecutive dividend increases = 6 years

Paying dividends since = 1998

Total return last 3 years = 79.25%

Total return last 5 years = 55.03%

Notes

Total cash flow from operating activities is trending upwards aside from the small dip in 2010. Net income has increased for the past 3 years and is on course to do so for the 4th year in a row. It also sports a very strong 5 year dividend growth rate of 38.46% and decent interest coverage ratio of 3.1.

All charts sourced from dividata.com

Source: The Highest Paying REITs With Yields As High As 13.4%: Part IV