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While the extremely low rate environment and the ongoing economic uncertainty is driving more individuals towards investments that pay out dividends, traders should not simply jump into this segment of the market without understanding what they are getting into. We have provided a list of some of the more important key ratios that we think could prove to be useful during the selection process.

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 some time. 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 Splendid Plays With Superb Yields As High As 7.5%

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.

Asset turnover is calculated by dividing revenues by assets. It measures a firm's effectiveness at using its assets in generating revenue. Higher numbers are generally better and vice versa. In general companies with low profit margins have higher asset turnover rates then companies with high profit margins.

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. For example, if a company has an interest ratio of 11.8, this means that it covers interest expenses 11.8 times with operating profits.

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

PG&E Corp. (PCG) is our favorite play on this list for the following reasons:

  1. A good 5 year dividend growth rate of 7.23%
  2. A decent 5 year dividend average of 4%
  3. A manageable payout ratio of 72%
  4. While net income has been slowing down, operating cash flow has been surging upwards, and is set to grow by another $ 1.3 billion in 2011
  5. A decent interest coverage ratio of 3.1
  6. A quarterly revenue growth rate of 9.9%
  7. A total 3 year returns of 25%
  8. It has a strong balance sheet with a long term debt to capitalization ratio of 48.8% compared to the industry average of roughly 83%. As of 9/30/2011, it had total cash and cash equivalents to the tune of $277 million.
  9. 100K invested in PCG for 10 years would have grown to 270K

Stock

Dividend Yield (%)

Market Cap

Forward PE

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

HE

4.80

2.45B

14.44

457.17M

22.30%

0.50

3.24B

250.37M

PGN

4.70

15.91B

16.9

2.83B

-7.30%

0.31

9.49B

1.94B

GXP

4.10

2.85B

14.09

778.60M

6.20%

0.70

2.30B

511.90M

SE

3.70

20.01B

15.22

2.42B

3.30%

0.94

5.35B

2.19B

PCG

4.40

17.05B

13.18

4.31B

9.90%

0.29

14.76B

4.12B

Hawaiian Electric Industries, (HE)

Industry : Electric Utilities

Levered Free Cash Flow: -3.91B

Net income for the past three years

2008 = $90.28 million

2009 = $84.91 million

2010 = $115.43 million

2011= It stand at $105 million and could top the $153 million mark.

Total cash flow from operating activities

2008 = $257.93 million

2009 = $284.47 million

2010 = $340.72 million

2011= it stands at $102 and could top the $148 million mark.

Key Ratios

P/E Ratio = 17.9

P/E High - Last 5 Yrs = 27.8

P/E Low - Last 5 Yrs = 13.3

Price to Sales = 0.76

Price to Book = 1.61

Price to Tangible Book = 1.7

Price to Cash Flow = 8.4

Price to Free Cash Flow = -57.9

Quick Ratio = 0.1

Current Ratio = 1.1

LT Debt to Equity = 0.87

Total Debt to Equity = 1.06

Interest Coverage = 3.2

Inventory Turnover = N.A.

Asset Turnover = 0.3

ROE = 8.96%

Return on Assets = 1.94%

200 day moving average = 24.93

Total debt = 1.64B

Book value = 15.95

Qtrly Earnings Growth = 38.6%

Dividend yield 5 year average = 5.5%

Dividend rate = $ 1.24

Payout ratio = 86%

Dividend growth rate 5 year avg = 5.4%

Consecutive dividend increases = 0 years

Paying dividends since = 1901

Total return last 3 years = 40.93%

Total return last 5 years = 18.55%

Notes

Net income and operating cash flow have been rising for the past 3 years. It has decent quarterly revenue and earnings growth rate. Payout ratio is under 100%. It has a decent current ratio of 1.1 and an average interest coverage ratio of 3.2.

Progress Energy, Inc. (PGN)

Industry : Electric Utilities

Levered Free Cash Flow: -819.12M

Net income for the past three years

2008 = $830 million

2009 = $757 million

2010 = $856 million

2011+ it stands at $651 and could top the $941 million mark.

Total cash flow from operating activities

2008 = $1.22 billion

2009 = $2.28 billion

2010 = $2.54 billion

2011= It stands at $1.3 billion and could top $1.8 billion.

Key Ratios

P/E Ratio = 20.4

P/E High - Last 5 Yrs = 26.9

P/E Low - Last 5 Yrs = 10.3

Price to Sales = 1.66

Price to Book = 1.54

Price to Tangible Book = 2.4

Price to Cash Flow = 9.3

Price to Free Cash Flow = -14.2

Quick Ratio = 0.4

Current Ratio = 1

LT Debt to Equity = 1.17

Total Debt to Equity = 1.27

Interest Coverage = 2.5

Inventory Turnover = 4.7

Asset Turnover = 0.3

ROE = 7.77%

Return on Assets = 3.62%

200 day moving average = 51.7

Total debt = 13.07B

Book value = 34.28

Qtrly Earnings Growth = -19.4%

Dividend yield 5 year average = 5.8%

Dividend rate = $ 2.48

Payout ratio = 95%

Dividend growth rate 3 year avg = 3.68%

Dividend growth rate 5 year avg = 0.55%

Paying dividends since = 1937

Total return last 3 years = 57.1%

Total return last 5 years = 32.68%

Notes

It has a negative quarterly earnings and growth rate. Operating cash flow could take a hit in 2011. Payout ratio is close to 100%. On the positive side, it has a very long dividend history; it has been paying dividend since 1937.

Great Plains Energy, Inc. (GXP)

Industry : Electric Utilities

Levered Free Cash Flow: 50.76M

Net income for the past three years

2008 = $154.5 million

2009 = $150.1 million

2010 = $211.7 million

Total cash flow from operating activities

2008 = $437.9 million

2009 = $335.4 million

2010 = $552.1 million

Key Ratios

P/E Ratio = 17.4

P/E High - Last 5 Yrs = 20.4

P/E Low - Last 5 Yrs = 8.9

Price to Sales = 1.23

Price to Book = 0.95

Price to Tangible Book = 1

Price to Cash Flow = 5.8

Price to Free Cash Flow = -38.6

Quick Ratio = 0.3

Current Ratio = 0.4

LT Debt to Equity = 0.92

Total Debt to Equity = 1.24

Interest Coverage = 2.2

Inventory Turnover = 6.4

Asset Turnover = 0.3

ROE = 5.6%

Return on Assets = 3.26%

200 day moving average = 20.22

Total debt = 3.84B

Book value = 21.98

Qtrly Earnings Growth = -4.2%

Dividend yield 5 year average = 5.9%

Dividend rate = $ 0.85

Payout ratio = 70%

Dividend growth rate 3 year avg = -16.47%

Dividend growth rate 5 year avg = -15.62%

Consecutive dividend increases = 1 years

Paying dividends since = 1921

Total return last 3 years = 51.31%

Total return last 5 years = -16.94%

Notes

It has a negative quarterly earnings growth rate, and a negative 3 and 5 year dividend growth rate. It also sports a weak current ratio of 0.4. The dividend took a massive hit in 2009; it was cut by 50%. Only individuals willing to take on a bit more risk should consider this play.

Spectra Energy Corp (SE)

Industry : Equipment & Services

Levered Free Cash Flow : -476.75M

Net income for the past three years

2008 = $1.13 billion

2009 = $849 million

2010 = $1.05 billion

Total cash flow from operating activities

2008 = $1.81 billion

2009 = $1.76 billion

2010 = $1.41 billion

Key Ratios

P/E Ratio = 16.9

P/E High - Last 5 Yrs = 19.9

P/E Low - Last 5 Yrs = 7.4

Price to Sales = 3.72

Price to Book = 2.43

Price to Tangible Book = 5.16

Price to Cash Flow = 9.8

Price to Free Cash Flow = -23.9

Quick Ratio = 0.4

Current Ratio = 0.6

LT Debt to Equity = 1.25

Total Debt to Equity = 1.37

Interest Coverage = 3.9

Inventory Turnover = 6.2

Asset Turnover = 0.2

ROE = 14.05%

Return on Assets = 4%

200 day moving average = 11.97M

Current Ratio = 0.57

Total debt = 11.72B

Book value = 13.67

Qtrly Earnings Growth = -9.7%

Dividend yield 5 year average = 4.6%

Dividend rate = $ 1.12

Payout ratio = 59%

Dividend growth rate 3 year avg = 3.32%

Consecutive dividend increases = 1 years

Paying dividends since = 2007

Total return last 3 years = 134.66%

Total return last 5 years = 36.26%

Notes

Low payout ratio, a strong 3 year total return of 134% and decent 5 year dividend average of 4.6%

PG&E Corp.

Industry: Electric Utilities

Levered Free Cash Flow: -913.00M

Net income for the past three years

2008 = $1.2 billion

2009 = $1.24 billion

2010 = $1.12 billion

2011= It stands at $771 million and could top the $1 billion mark.

Total cash flow from operating activities

2008 = $2.77 billion

2009 = $3.04 billion

2010 = $3.21 billion

2011= it stands at $3.2 billion and could top the $4.5 billion mark.

Key Ratios

P/E Ratio = 16.3

P/E High - Last 5 Yrs = 18.8

P/E Low - Last 5 Yrs = 8.3

Price to Sales = 1.14

Price to Book = 1.41

Price to Tangible Book = 1.41

Price to Cash Flow = 5.3

Price to Free Cash Flow = -30.4

Quick Ratio = 0.3

Current Ratio = 0.9

Total Debt to Equity = 1.11

Interest Coverage = 3.1

Inventory Turnover = 26.4

Asset Turnover = 0.3

ROE = 8.61%

Return on Assets = 2.73%

200 day moving average = 40.94

Total debt = 13.23B

Book value = 29.67

Qtrly Earnings Growth = -22.5%

Dividend yield 5 year average = 4%

Dividend rate = $ 1.82

Payout ratio = 72%

Dividend growth rate 3 year avg = 5.34%

Dividend growth rate 5 year avg = 7.23%

Consecutive dividend increases = 6 years

Paying dividends since = 1990

Total return last 3 years = 24.9%

Total return last 5 years = 3.71%

EPS charts sourced from zacks.com and dividend history charts sourced from diviidata.com

Revenue mix and electricity segmentations graphs for PCG were provided by zacks.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 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.

Source: 5 Super Utility Stocks With Stellar Records And Splendid Yields