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In this series what we are aiming to do is provide a plethora of data and then pick one of the plays as our favorite play and then list some of the reasons we chose this play. By doing this we hope to impart some knowledge to those who are new to the field of dividend investing. A lot of ratios will be used in this article and it would be best for investors to get a handle on some of these ratios as they could prove to be very useful in the selection process. Some of the more important key ratios are listed below.

We generally base our choice on the following factors:

Net income = it should be generally trending upwards for the past 3-4 years.

Total cash flow from operating activities= it also should be trending upwards for the past 3-4 years. Payout ratio = it should generally be below 100%, but a ratio below 70% is optimal. Payout ratios are not that important when it comes to MLPs/REITs as they generally pay a majority of their cash flow as distributions; in the case of REITs by law they have to pay out 90% of their cash flow as dividends. 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 and REITs 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/dividend declared per unit/share.

Current ratio = should be above 1.

Interest coverage ratio = any value above 1.5 is okay, but we would aim for 2.5-3.00 as our starting range. The higher the number the better.

Dividend growth rate = it should be at 5% or higher. A high yield with a low dividend growth rate is not good in the long run, but neither is a low dividend yield with a high growth rate; one needs to find an equilibrium here.

Five year dividend average = we generally aim for stocks that have a yield of 4.5% or higher. There are exceptions to this rule. Some stocks appreciate very fast, so even though the yield might be low, one can more than make up the difference through capital gains. One example is JAH.

Sales = they should generally be trending upwards for the past 3-4 years.

Levered free cash flow = this is the icing on the cake; if a company meets most of the above requirements and also has a positive levered free cash flow; it can generally be viewed as a good long term buy. Two examples are LEG and PG.

An early warning signal that the company could be in trouble is when the total cash flow generated from operating expenses is not enough to meet the dividend payments. This information can be gleaned by looking at the cash flow statement; this is readily available at yahoo finance. In the example below we used LEG and the data was obtained from Yahoo Finance.

The cash flow in this case was more than enough to easily cover all the dividend payments for all the above years; in this the time period was from 2008-2010.

Many traders use other metrics and that is fine; we are just trying to provide a guideline. As you get better handle of the ratios explained below you can create your own list of criteria.

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. 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 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 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 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 earning's ratio.

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.

Inventory turnover is calculated by dividing sales by inventory. If a company generated $30 million in sales and had an average inventory of $6 million; the inventory turn over would be equal to 5. This value indicates that there are 5 inventory turnovers per year. This means that it takes roughly 2.4 months to sell the inventory. A low inventory turnover is a sign of inefficiency and vice versa.

Price to tangible book is obtained by dividing share price by tangible book value per share. The ratio gives investors some idea of whether they are paying too much for what would be left over if the company were to declare bankruptcy immediately. In general stocks that trade at higher price to tangible book value could leave investors facing a great percentage per share loss than those that trade at lower ratios. The price to tangible book value is theoretically the lowest possible price the stock would trade to.

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. A company with a quick ratio of less than 1 cannot pay back its current liabilities. Additional key metrics are addressed in this article Enterprise Products Is A Great Long-Term Play.

Tupperware Brnd (NYSE:TUP) is our favourite play on the list for the following reasons

Net income, cash flow and sales have generally been trending upwards for the past 4 years.

It has a decent 5 year dividend growth of 8.24%

It has a very low and manageable payout ratio of 28% and a 5 year average payout ratio of only 34%

It has great 5 year average ROE of 32.57%

A decent current ratio of 1.14

A very healthy and strong interest coverage ratio of 15.46%

Even though the dividend yield is only 1.96% considerably lower than LEG yield of 5.2%, 100K invested for 10 years would have grown to 339K as opposed to 134K if it was invested in LEG. This goes to show that one should not base their decision on yield alone.

Symbol

Yield %

Revenue

Operating cash flow

JAH

1%

6.6B

299M

NWL

1.7

5.85B

561M

MHK

0

5.53B

247M

TUP

2.3%

2.58B

274M

LEG

5.2

3.64B

328M

Company : Jarden Corp (NYSE:JAH)

Basic Key ratios

Percentage Held by Insiders = 6.4

Market Cap ($mil) = 3084

# of Ins Sellers 12 Weeks = N/A

3M % Chg Short Interest = n/a

Growth

Net Income ($mil) 12/2011 = N/A

Net Income ($mil) 12/2010 = 107

Net Income ($mil) 12/2009 = 129

12mo Net Incm this Q/ 12mo Net Incm 4Q's ago = 276.31

Q Net Incm this Q/ same qtr yr ago = 12.53

Cash Flow ($/sh) 12/2011 = N/A

EBITDA ($mil) 12/2011 = N/A

Cash Flow ($/sh) 12/2010 = 4.59

EBITDA ($mil) 12/2010 = 570

Cash Flow ($/sh) 12/2009 = 4.19

EBITDA ($mil) 12/2009 = 540

Net Incm Rpt Qtr ($mil) = 91

Anl Net Incm this Yr/ Net Incm last Yr = -17.09

Sales ($mil) 12/2011 = N/A

Sales ($mil) 12/2010 = 6023

Sales ($mil) 12/2009 = 5153

Dividend history

Div Yield = 1.02

Div Yld 5 Yr Avg 12/2011 = 0.5

Div Yld 5 Yr Avg 09/2011 = 0.44

Annual Dividend 12/2011 = 0.35

Annual Dividend 12/2010 = 0.33

frwd yld = 1.03

Div 5yr Growth 12/2011 = N/A

Div 5yr Growth 12/2011 = N/A

R-squared Div Growth 12/2011 = N/A

R-squared Div Growth 09/2011 = N/A

Dividend sustainability

Payout Ratio 09/2011 = 0.1

Payout Ratio 06/2011 = 0.11

Payout Ratio 5 Yr Avg 12/2011 = 0.06

Payout Ratio 5 Yr Avg 09/2011 = 0.05

Payout Ratio 5 Yr Avg 06/2011 = 0.05

Change in Payout Ratio = 0.05

Performance

% Ch Price 52 Wks Rel to S&P 500 = -5

Std Dev Target Price Est = 6.11

Avg EPS Surp Last 4 Qtr = 10.9

EPS % Change F2/F1 = 11.73

Next 3-5 Yr Est EPS Gr rate = 10.5

Std Dev 3-5 Yr Est EPS Gr rate = 1

EPS Gr Q(1)/Q(-3) = -137.21

5 Yr Hist EPS Gr 12/2011 = N/A

5 Yr Hist EPS Gr 09/2011 = 4.9

ROE 5 Yr Avg 12/2011 = 14.01

ROE 5 Yr Avg 09/2011 = 14.02

ROE 5 Yr Avg 06/2011 = 13.89

Return on Investment 12/2011 = N/A

Return on Investment 09/2011 = 6.1

Return on Investment 06/2011 = 5.91

Debt/Tot Cap 5 Yr Avg 12/2011 = 60.03

Debt/Tot Cap 5 Yr Avg 09/2011 = 59.69

Debt/Tot Cap 5 Yr Avg 06/2011 = 59.51

Current Ratio 12/2011 = N/A

Current Ratio 09/2011 = 2.39

Current Ratio 06/2011 = 2.36

Curr Ratio 5 Yr Avg = 2.13

Quick Ratio = 1.24

Cash Ratio = 0.6

Interest Coverage 12/2011 = N/A

Interest Coverage 09/2011 = 4.23

Interest Coverage 06/2011 = 3.59

Valuation

Book Value Qtr ($/sh) 12/2011 = N/A

Book Value Qtr ($/sh) 09/2011 = 20.89

Book Value Qtr ($/sh) 06/2011 = 21.09

Anl EPS before NRI 12/2011 = N/A

Anl EPS before NRI 12/2010 = 2.9

Anl EPS before NRI 12/2009 = 2.6

Anl EPS before NRI 12/2008 = 2.76

Anl EPS before NRI 12/2007 = 2.88

Price/ Book = 1.63

Price/ Cash Flow = 7.39

Price/ Sales = 0.47

EV/EBITDA 12 Mo = 9.92

P/E/G F1 = 0.86

Q1 Std Dev/ Consensus = 0.04

R-squared EPS Growth 12/2011 = N/A

R-squared EPS Growth 09/2011 = 0.67

P/E F1/ LT EPS Gr = 0.86

Payout Ratio 12/2011 = N/A

Div 5yr Growth 09/2011 = N/A

Std Dev Cons Current Qtr = 0.02

Median Est Next Qtr = 1.01

# Anlst in Cons Q3 = 4

Company : Newell Rubbermd (NYSE:NWL)

Basic Key ratios

Percentage Held by Insiders = 1.1

Market Cap ($mil) = 5492

# of Ins Sellers 12 Weeks = N/A

3M % Chg Short Interest = n/a

Growth

Net Income ($mil) 12/2011 = 125

Net Income ($mil) 12/2010 = 293

Net Income ($mil) 12/2009 = 286

Cash Flow ($/sh) 12/2011 = 2.19

Cash Flow ($/sh) 12/2010 = 2.1

Cash Flow ($/sh) 12/2009 = 1.96

Sales ($mil) 12/2011 = 5865

Sales ($mil) 12/2010 = 5759

Sales ($mil) 12/2009 = 5578

Dividend history

Div Yield = 1.69

Div Yld 5 Yr Avg 12/2011 = 2.86

Annual Dividend 12/2011 = 0.29

frwd yld = 1.7

Div 5yr Growth 12/2011 = -29.46

R-squared Div Growth 12/2011 = 0.6

R-squared Div Growth 09/2011 = 0.67

Dividend sustainability

Payout Ratio 09/2011 = 0.21

Payout Ratio 06/2011 = 0.21

Payout Ratio 5 Yr Avg 12/2011 = 0.32

Performance

EPS Gr Q(1)/Q(-3) = -117.65

5 Yr Hist EPS Gr 12/2011 = -2.48

ROE 5 Yr Avg 12/2011 = 21.65

ROE 5 Yr Avg 09/2011 = 21.86

ROE 5 Yr Avg 06/2011 = 22.21

Return on Investment 12/2011 = 12.58

Return on Investment 09/2011 = 11.84

Return on Investment 06/2011 = 11.31

Debt/Tot Cap 5 Yr Avg 12/2011 = 50.27

Debt/Tot Cap 5 Yr Avg 09/2011 = 50.35

Debt/Tot Cap 5 Yr Avg 06/2011 = 50.55

Current Ratio 09/2011 = 1.29

Curr Ratio 5 Yr Avg = 1.29

Quick Ratio = 0.87

Cash Ratio = 0.27

Interest Coverage 12/2011 = 5.58

Interest Coverage 09/2011 = N/A

Interest Coverage 06/2011 = 9.12

Valuation

Book Value Qtr ($/sh) 09/2011 = 6.52

Anl EPS before NRI 12/2011 = 1.59

Anl EPS before NRI 12/2010 = 1.52

Price/ Book = 2.96

Price/ Cash Flow = 8.68

Price/ Sales = 0.93

EV/EBITDA 12 Mo = 17.81

P/E/G F1 = 1.17

Q1 Std Dev/ Consensus = 0.05

Std Dev Cons Current Qtr = 0.02

Median Est Next Qtr = 0.46

# Anlst in Cons Q3 = 10

Company : Mohawk Inds Inc (NYSE:MHK)

Basic Key ratios

Percentage Held by Insiders = 17.4

Market Cap ($mil) = 4603

# of Ins Sellers 12 Weeks = 1

3M % Chg Short Interest = n/a

Growth

Net Income ($mil) 12/2011 = N/A

Net Income ($mil) 12/2010 = 185

Net Income ($mil) 12/2009 = -5

Cash Flow ($/sh) 12/2011 = N/A

Cash Flow ($/sh) 12/2010 = 6.86

Cash Flow ($/sh) 12/2009 = 4.88

Sales ($mil) 12/2011 = N/A

Sales ($mil) 12/2010 = 5319

Sales ($mil) 12/2009 = 5344

Dividend history

Div Yield = 0

Div Yld 5 Yr Avg 12/2011 = 0

Annual Dividend 12/2011 = 0

frwd yld = N/A

Div 5yr Growth 12/2011 = N/A

R-squared Div Growth 12/2011 = N/A

R-squared Div Growth 09/2011 = N/A

Dividend sustainability

Payout Ratio 09/2011 = 0

Payout Ratio 06/2011 = 0

Payout Ratio 5 Yr Avg 12/2011 = 0

Performance

EPS Gr Q(1)/Q(-3) = -125.76

5 Yr Hist EPS Gr 12/2011 = N/A

ROE 5 Yr Avg 12/2011 = 6.35

ROE 5 Yr Avg 09/2011 = 6.67

ROE 5 Yr Avg 06/2011 = 7.02

Return on Investment 12/2011 = N/A

Return on Investment 09/2011 = 4.17

Return on Investment 06/2011 = 4.05

Debt/Tot Cap 5 Yr Avg 12/2011 = 32.12

Debt/Tot Cap 5 Yr Avg 09/2011 = 32.37

Debt/Tot Cap 5 Yr Avg 06/2011 = 33.11

Current Ratio 09/2011 = 2.01

Curr Ratio 5 Yr Avg = 2.16

Quick Ratio = 1.18

Cash Ratio = 0.6

Interest Coverage 12/2011 = N/A

Interest Coverage 09/2011 = 3.11

Interest Coverage 06/2011 = 3.93

Valuation

Book Value Qtr ($/sh) 09/2011 = 49.72

Anl EPS before NRI 12/2011 = N/A

Price/ Book = 1.35

Price/ Cash Flow = 9.76

Price/ Sales = 0.83

EV/EBITDA 12 Mo = 8.84

P/E/G F1 = 0.91

Q1 Std Dev/ Consensus = 0.1

Std Dev Cons Current Qtr = 0.06

Median Est Next Qtr = 1.12

# Anlst in Cons Q3 = 8

Company : Tupperware Brnd

Basic Key ratios

Percentage Held by Insiders = 4.29

Market Cap ($mil) = 3516

# of Ins Sellers 12 Weeks = 4

3M % Chg Short Interest = n/a

Growth

Net Income ($mil) 12/2011 = 218

Net Income ($mil) 12/2010 = 226

Net Income ($mil) 12/2009 = 175

Cash Flow ($/sh) 12/2011 = 5.39

Cash Flow ($/sh) 12/2010 = 4.57

Cash Flow ($/sh) 12/2009 = 3.92

Sales ($mil) 12/2011 = 2585

Sales ($mil) 12/2010 = 2300

Sales ($mil) 12/2009 = 2128

Dividend history

Div Yield = 1.96

Div Yld 5 Yr Avg 12/2011 = 2.71

Annual Dividend 12/2011 = 1.2

frwd yld = 2.33

Div 5yr Growth 12/2011 = 8.24

R-squared Div Growth 12/2011 = 0.78

R-squared Div Growth 09/2011 = 0.73

Dividend sustainability

Payout Ratio 09/2011 = 0.28

Payout Ratio 06/2011 = 0.29

Payout Ratio 5 Yr Avg 12/2011 = 0.34

Performance

EPS Gr Q(1)/Q(-3) = -108.7

5 Yr Hist EPS Gr 12/2011 = 20.02

ROE 5 Yr Avg 12/2011 = 32.57

ROE 5 Yr Avg 09/2011 = 31.99

ROE 5 Yr Avg 06/2011 = 31.49

Return on Investment 12/2011 = 24.98

Return on Investment 09/2011 = 23.5

Return on Investment 06/2011 = 21.76

Debt/Tot Cap 5 Yr Avg 12/2011 = 46.44

Debt/Tot Cap 5 Yr Avg 09/2011 = 47.32

Debt/Tot Cap 5 Yr Avg 06/2011 = 48.47

Current Ratio 09/2011 = 1.14

Curr Ratio 5 Yr Avg = 1.55

Quick Ratio = 0.67

Cash Ratio = 0.37

Interest Coverage 12/2011 = 15.46

Interest Coverage 09/2011 = 4.25

Interest Coverage 06/2011 = 4.17

Valuation

Book Value Qtr ($/sh) 09/2011 = 9.03

Anl EPS before NRI 12/2011 = 4.45

Price/ Book = 7.03

Price/ Cash Flow = 11.36

Price/ Sales = 1.36

EV/EBITDA 12 Mo = 10

P/E/G F1 = 1.02

Q1 Std Dev/ Consensus = 0.01

Std Dev Cons Current Qtr = 0.01

Median Est Next Qtr = 1.33

# Anlst in Cons Q3 = 6

Company : Leggett & Platt (NYSE:LEG)

Basic Key ratios

Percentage Held by Insiders = 2.17

Market Cap ($mil) = 2996

Number of Institutional Sellers 12 Weeks = 3

3 Month % Chg Short Interest = n/a

Growth

Net Income ($mil) 12/2011 = 153

Net Income ($mil) 12/2010 = 177

Net Income ($mil) 12/2009 = 112

12mo Net Incm this Q/ 12mo Net Incm 4Q's ago = -13.19

Q Net Incm this Q/ same qtr yr ago = -72.29

EBITDA ($mil) 12/2011 = N/A

EBITDA ($mil) 12/2010 = 416

EBITDA ($mil) 12/2009 = 369

Net Incm Rpt Qtr ($mil) = 9

Anl Net Incm this Yr/ Net Incm last Yr = -13.19

Cash Flow ($/sh) 12/2011 = 1.32

Cash Flow ($/sh) 12/2010 = 2.05

Cash Flow ($/sh) 12/2009 = 1.78

Div 5yr Growth 12/2011 = 8.21

Sales ($mil) 12/2011 = 3636

Sales ($mil) 12/2010 = 3359

Sales ($mil) 12/2009 = 3055

Dividend history

Div Yield = 5.2

Div Yld 5 Yr Avg 12/2011 = 5.07

Div Yld 5 Yr Avg 09/2011 = 4.97

Annual Dividend 12/2011 = 1.1

Annual Dividend 12/2010 = 1.06

Forward Yield = 5.24

Div 5yr Growth 12/2011 = 8.21

R-squared Div Growth 12/2011 = 0.63

R-squared Div Growth 09/2011 = 0.67

Dividend sustainability

Payout Ratio 09/2011 = 0.96

Payout Ratio 06/2011 = 0.92

Payout Ratio 5 Yr Avg 12/2011 = 0.99

Payout Ratio 5 Yr Avg 09/2011 = 0.96

Payout Ratio 5 Yr Avg 06/2011 = 0.93

Change in Payout Ratio = -0.04

Performance

% Ch Price 52 Wks Rel to S&P 500 = -10.41

Std Dev Target Price Est = 1.16

Avg EPS Surprise Last 4 Qtr = 8.87

EPS % Change F2/F1 = 16.54

Next 3-5 Yr Est EPS Gr rate = 15

Std Dev 3-5 Yr Est EPS Gr rate = N/A

EPS Gr Q(1)/Q(-3) = -104.76

5 Yr Hist EPS Gr 12/2011 = -2.78

5 Yr Hist EPS Gr 09/2011 = -5.82

ROE 5 Yr Avg 12/2011 = 9.97

ROE 5 Yr Avg 09/2011 = 10

ROE 5 Yr Avg 06/2011 = 10.06

Return on Investment 12/2011 = 7.73

Return on Investment 09/2011 = 7.6

Return on Investment 06/2011 = 7.64

Debt/Tot Cap 5 Yr Avg 12/2011 = 34.42

Debt/Tot Cap 5 Yr Avg 09/2011 = 34.02

Debt/Tot Cap 5 Yr Avg 06/2011 = 33.56

Current Ratio 12/2011 = 2.09

Current Ratio 09/2011 = 2.14

Current Ratio 06/2011 = 2.28

Curr Ratio 5 Yr Avg = 2.38

Quick Ratio = 1.34

Cash Ratio = 0.48

Interest Coverage 12/2011 = 2.48

Interest Coverage 09/2011 = 8.73

Interest Coverage 06/2011 = 11.14

Valuation

Book Value Qtr ($/sh) 12/2011 = 9.4

Book Value Qtr ($/sh) 09/2011 = 9.45

Book Value Qtr ($/sh) 06/2011 = 10.18

Anl EPS before NRI 12/2011 = 1.12

Anl EPS before NRI 12/2010 = 1.16

Anl EPS before NRI 12/2009 = 0.86

Anl EPS before NRI 12/2008 = 0.88

Anl EPS before NRI 12/2007 = 1.18

Price/ Book = 2.29

Price/ Cash Flow = 16.36

Price/ Sales = 0.82

EV/EBITDA 12 Mo = 8.64

P/E/G F1 = 1.1

Q1 Std Dev/ Consensus = 0.09

R-squared EPS Growth 12/2011 = 0.02

R-squared EPS Growth 09/2011 = 0.09

P/E F1/ LT EPS Gr = 1.1

Payout Ratio 12/2011 = 0.95

Div 5yr Growth 09/2011 = 9.6

Std Dev Cons Current Qtr = 0.03

Median Est Next Qtr = 0.37

# Anlst in Cons Q3 = 6

Notes on Leg

  • Net income and cash flow have been trending upwards for the past 3 years
  • It has a decent 5 year dividend growth rate of 8.2%
  • It has consecutively increased its dividends for over 40 years
  • Total cash flow from operating activities is over 360 million
  • In addition to this it has a free levered free cash flow rate of $220 million
  • A very good current ratio of 2.09
  • An acceptable interest coverage ratio of 8.73

Conclusion

As the markets are rather overbought, investors would do well to wait for a strong pull back before commiting large sums of money to this market.

A large portion of this historical data was obtained from zacks.com. EPS charts were sourced from zacks.com and dividend history charts were sourced from dividata.com

Source: A Statistical Analysis Of 5 Great Dividend Plays