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Today, we are going to examine five stocks that offer high yields. Do not base your decision on yield alone, but take the time to get a handle on some of the following key ratios for 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 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 6 Great Stocks With Yields As High As 8%

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.

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 sales ratio is calculated by dividing the company's share price by its revenue per share. Generally, the smaller the ratio (less than 1.0) the better the investment since the investor is paying less for each unit of sales. However, there are exceptions as a company with a low price to sales ratio could be unprofitable. It is sometimes used to determine the relative valuation of a sector.

Price to cash flow ratio is obtained by dividing the share price by cash flow per share. It is a measure of the market's expectations of a company's future financial health. The effects of depreciation and other non cash factors are removed, and this makes it easier for investors to assess foreign companies in the same industry. This ratio also provides a measure of relative value like the price to earnings ratio.

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 5 Interesting Plays With Yields As High As 11.50%

Linn Energy LLC (LINE) is our favourite play for the following reasons:

  1. It increased production by 30% in 2011 and has set a goal of increasing production by 40% in 2012
  2. It has very attractive 5 year average yield of 10.3%
  3. It sports a great 5 year dividend growth rate of 18%
  4. An impressive 3 year total return of 174%
  5. A decent current ratio of 1.4
  6. A strong quarterly revenue growth rate of 32.8%

Important facts investors should be aware in regards to investing in MLPs

Payout ratios are not that important when it comes to MLPs as they are required by law to pay a majority of their cash flow as distributions. Payout ratios are calculated by dividing the dividend/distribution rate by the net income per share, and this is why the payout ratio for MLPs is often higher than 100%. The more important ratio to focus on is the cash flow per unit. If one focuses on the cash flow per unit, one will see that in most cases, it exceeds the distribution declared per unit.

MLPs are not taxed like regular corporations because they pay out a large portion of their income to partners (as an investor you are basically a partner and are allocated units instead of shares) usually through quarterly distributions. The burden is thus shifted to the partners who are taxed at their ordinary income rates. As ordinary income tax rates of investors are typically lower than the income tax assessed on corporations, this arrangement is advantageous to the MLPs and generally most investors.

MLPs issue a Schedule K-1 to their investors. Unrelated business income (UBI) above $1,000 is taxable in an IRA. This information will appear Box 20 in the schedule K-1. UBI is typically a very small number usually well below $1000 and in some cases negative. If the MLP pays out distributions in excess of the income it generates, the distribution is classified as a "return of capital" and tax deferred until you sell your units. For more information, on this topic investors can visit the National Association of Publicly Traded Partnerships.

Stock

Dividend Yield (%)

Market Cap

Forward PE

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

NCMI

6.10

774.93M

23.95

211.50M

8.20%

0.81

438.90M

152.10M

LINE

7.60

6.44B

16.56

1.10B

32.80%

0.68

792.57M

573.93M

NS

7.60

3.75B

17.02

479.80M

61.40%

0.41

6.58B

N/A

NUE

3.20

14.38B

11.24

2.02B

25.30%

1.12

20.02B

1.03B

VIP

13.20

18.32B

9.13

7.19B

115.70%

0.00

17.18B

5.00B

National CineMedia Inc

Industry : Advertising

Levered Free Cash Flow: 97.03M

Net income for the past three years

2009 = $1 million

2009 = $26.1 million

2010 = $29.2 million

2011= It stands at $25 million and could top the $32 million level.

Total cash flow from operating activities

2009 = $124.5 million

2009 = $138.3 million

2010 = $143.7 million

2011= It stands at $108 and could top the $164 million mark.

Key Ratios

P/E Ratio = 21.1

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

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

Price to Sales = 1.81

Price to Book = 0

Price to Tangible Book = -1.13

Price to Cash Flow = 13.9

Price to Free Cash Flow = 9.8

Quick Ratio = 1.4

Current Ratio = 1.5

LT Debt to Equity = 0

Total Debt to Equity = N.A.

Interest Coverage = 1.9

Inventory Turnover = N.A.

Asset Turnover = 0.5

ROE = N/A

Return on Assets = 14.68%

200 day moving average = 13.36

Current Ratio = 1.49

Total debt = 852.00M

Book value = -7.93

Qtrly Earnings Growth = 42.4%

Dividend yield 5 year average = 4.1%

Dividend rate = $ 0.88

Payout ratio = 121%

Dividend growth rate 3 year avg = 10.8%

Consecutive dividend increases = 4 years

Paying dividends since = 2007

Total return last 3 years = 38.2%

Total return last 5 years = -31.87%

Notes

It has an attractive quarterly earnings growth of 42.4% and a decent three-year dividend growth rate of 10.8%. The payout ratio is a bit too high but total cash flow from operating activities has been enough to more than cover the dividend payments for the past three years. The interest coverage ratio is only 1.9 and we find that to be a bit too low. While this stock has the potential to trade well past 18; only individuals willing to take on a bit of extra risk should consider this play.

Linn Energy LLC

Industry : Production & Extraction

Levered Free Cash Flow: 189.10M

Net income for the past three years

2008 = $999.62 million

2009 = $-298.2 million

2010 = $-114.29 million

2011= It stands at 1.07 billion and could top the $1.8 billion mark.

Total cash flow from operating activities

2008 = $179.52 million

2009 = $426.81 million

2010 = $270.92 million

2011= it stands at $378 and could top the $558 million mark.

Key Ratios

P/E Ratio = 22.9

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

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

Price to Sales = 3.42

Price to Book = 1.73

Price to Tangible Book = 1.73

Price to Cash Flow = 9

Price to Free Cash Flow = -3.8

Quick Ratio = 0.6

Current Ratio = 1.4

LT Debt to Equity = 0.84

Total Debt to Equity = 0.84

Interest Coverage = 2.5

Inventory Turnover = N.A.

Asset Turnover = 0.3

ROE = 11.94%

Return on Assets = 6.96%

200 day moving average = 37.1

Current Ratio = 1.45

Total debt = 3.12B

Book value = 21

Qtrly Earnings Growth = 20117.9%

Dividend yield 5 year average = 10.3%

Dividend rate = $ 2.76

Payout ratio = 168%

Dividend growth rate 3 year avg = 2.73%

Dividend growth rate 5 year avg = 18.14%

Consecutive dividend increases = 2 years

Paying dividends since = 2006

Total return last 3 years = 174.91%

Total return last 5 years = 49.51%

Notes

LINE increased production in 2011 by 30% and plans on increasing production in 2012 by 40%. Net income and total cash flow from operating activities are exploding upwards. It also has a very good five-year dividend average of 10.3% and a very strong 5 year dividend growth rate of 18.14%. It has an impressive total return of 174% for the last three years. We would rate this stock as a good long term buy, but would wait for a pullback before opening up new positions.

NuStar Energy L.P.

Industry: Refining & Marketing

Free Cash Flow: $-60.9 million.

Net income for the past three years

2008 = $254.02 million

2009 = $224.88 million

2010 = $238.97 million

2011= It stands at $191 million and could top $261 million.

Total cash flow from operating activities

2008 = $485.19 million

2009 = $180.59 million

2010 = $362.5 million

2011= It stands at $269 and could top $369 million.

Key Ratios

P/E Ratio = 18.5

P/E High - Last 5 Yrs = 26.1

P/E Low - Last 5 Yrs = 6.4

Price to Sales = 0.64

Price to Book = 1.49

Price to Tangible Book = 2.31

Price to Cash Flow = 9.5

Price to Free Cash Flow = -8.4

Quick Ratio = 0.5

Current Ratio = 1.2

LT Debt to Equity = 0.86

Total Debt to Equity = 1.01

Interest Coverage = 4.1

Inventory Turnover = 10.2

Asset Turnover = 1.1

ROE = 8.48%

Return on Assets = N/A

200 day moving average = 56.65

Current Ratio = N/A

Total debt = 2.57B

Book value = 37.98

Qtrly Earnings Growth = -41.4%

Dividend yield 5 year average = 7.4%

Dividend rate = $ 4.36

Payout ratio = 138%

Dividend growth rate 3 year avg = 2.2%

Dividend growth rate 5 year avg = 4.57%

Consecutive dividend increases = 10 years

Paying dividends since = 2001

Total return last 3 years = 46.69%

Total return last 5 years = 29.97%

Notes

It has a strong quarterly revenue growth rate of 61%, a fair interest coverage ratio of 4.1, a great history of consecutively increasing its dividend, and a decent five-year dividend history of 7.4%. On the negative side quarterly earnings growth rate is -41%. Two other bright developments; net income and total cash flow from operating activities have been trending upwards in general for the past three years.

Nucor Corp.

Industry: Non-Precious Metals

Levered Free Cash Flow: 541.03M

Net income for the past three years

2008 = $1.84 billion

2009 = $-293.62 million

2010 = $134.1 million

2011= It stands at $639 and could top $800 million.

Total cash flow from operating activities

2008 = $2.5 billion

2009 = $1.18 billion

2010 = $873.41 million

2011= It stands at $675 and could top $900 million.

Key Ratios

P/E Ratio = 18.5

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

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

Price to Sales = 0.72

Price to Book = 1.92

Price to Tangible Book = 2.97

Price to Cash Flow = 11.8

Price to Free Cash Flow = 55.3

Quick Ratio = 1.8

Current Ratio = 2.9

LT Debt to Equity = 0.53

Total Debt to Equity = 0.57

Interest Coverage = 6.5

Inventory Turnover = 8.7

Asset Turnover = 1.4

ROE = 11.45%

Return on Assets = 6.27%

200 day moving average = 37.6

Current Ratio = 2.8

Total debt = 4.28B

Book value = 23.55

Qtrly Earnings Growth = N/A

Dividend yield 5 year average = 3.5%

Dividend rate = $ 1.46

Payout ratio = 59%

Dividend growth rate 3 year avg = -7.73%

Dividend growth rate 5 year avg = -6.85%

Consecutive dividend increases = 39 years

Paying dividends since = 1973

Total return last 3 years = 8.12%

Total return last 5 years = -14.84%

Notes

Net income has exploded upwards in 2011 after taking a beating in 2009 and 2010. It has a very decent quarterly revenue growth rate of 25% and a good interest coverage ratio of 6.4. It also has a manageable payout ratio of 59% and has consecutively increased its dividend for 39 years. The negative five and three year dividend average growth rates are slightly worrisome. For now we would avoid this stock unless it pulls back very strongly, and then we might consider deploying some money into it. There are better plays such as LINE and NS.

VimpelCom Ltd.

Industry : Services

Levered Free Cash Flow: 1.82B

Net income for the past three 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 = 11

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

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

Price to Sales = 1.07

Price to Book = 1.2

Price to Tangible Book = -1.42

Price to Cash Flow = 2.8

Price to Free Cash Flow = -33.9

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 = 10.65

Current Ratio = 1.12

Total debt = 26.00B

Book value = 9.41

Qtrly Earnings Growth = -79%

Dividend rate = $ 0.84

Payout ratio = 70%

Dividend growth rate 3 year avg = 0%

Consecutive dividend increases = 1 years

Paying dividends since = 2010

Total return last 3 years = N/A

Total return last 5 years = N/A

Notes

Its quarterly earnings growth has taken a beating (-79%) , and it has a very erratic short dividend history. Even though it sports an impressive quarterly revenue growth rate of a 112%, only individuals willing to take on extra risk should consider this play.

All 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. 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 13.2%