5 Great Plays With Grand Yields

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 |  Includes: BMS, CWT, LINEQ, NUE, NWN
by: Tactical Investor

Extreme market volatility is propelling more individuals to seek out stocks that pay dividends. Investors who are new to the concept of dividend investing should take the time to understand the following ratios; they could prove to be immensely useful in the selection process and improve one's odds of choosing winning candidates.

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.

Long-term debt-to-equity ratio is the total long-term debt divided by the total equity. The amount of long-term debt a company carries on its balance sheet is very important for it indicates the amount of money a company owes that it doesn't expect to pay off in the next year. A balance sheet that illustrates that long-term debt has been decreasing for a few years is a sign that the company is doing well. When debt levels fall, and cash levels increase the balance sheet is said to be improving and vice versa. If a company has too much debt on its books, it could end up being overwhelmed with interest payments and risk having too little working capital, which could in the worst-case scenario lead to bankruptcy.

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. Individuals searching for other ideas might find this article to be of interest, "Super Stocks Sporting Strong Records And Yields."

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 jeopardizing 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 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 off 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, "5 Super Stocks Sporting Stellar Records And Splendid yields."

This was a tough choice as we were going to select Nucor Corp. (NYSE:NUE) but opted for Linn Energy (LINE) because it had a better rate of return and going forward we think it will continue to outshine all the other plays on this list.

Linn Energy LLC is our play of choice for the following reasons:

  1. It has a 5-year dividend average of 9.50%
  2. A very strong 5-year dividend growth rate of 18%
  3. It has a incredibly strong 3-year rate return of 218%
  4. It increased production by 30% in 2011 and is aiming for a 40% increase in 2012
  5. Net income and operating cash flow exploded upward in 2011
  6. It sports a good current ratio of 1.4 and an acceptable interest coverage ratio of 2.5
  7. It also has a healthy levered free cash flow of almost $190 million
  8. It has grown from just a handful of wells (natural gas) in 2003 to one of the top 20 independent U.S. oil and natural gas development companies with over 2.4TCFE in reserves.
  9. In 2009 it delivered a 100% rate of return to unit holders.
  10. It has interests in more than 9000 producing wells across the U.S. and huge list of inventory development opportunities that will maintain and increase production and reserves for years to come.
  11. Two main drivers for LINE are the Permian basis and its horizontal drilling program in the Granite Wash Trend.
  12. 100K invested in LINE would have grown to 244K in 6 years

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

Payout ratios are not that important when it comes to MLPs generally 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 (%)

Enterprise Value

Forward PE

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

LINE

7.50%

6.54B

16.81

1.10B

32.80%

0.68

792.57M

573.93M

BMS

3.10

4.75B

13.27

626.46M

1.70%

0.68

5.32B

416.58M

NUE

3.30

15.66B

10.82

2.02B

25.30%

1.12

20.02B

1.03B

NWN

3.70

2.09B

18.3

214.10M

-1.80%

0.32

845.74M

203.23M

CWT

3.40

1.26B

16.68

146.21M

15.70%

0.28

504.26M

95.77M

Click to enlarge

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 = 3.47

Price to Book = 1.76

Price to Tangible Book = 1.76

Price to Cash Flow = 9.20

Price to Free Cash Flow = -3.90

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%

Total debt = 3.12B

Book value = 21

Qtrly Earnings Growth = 20117.9%

Dividend yield 5-year average = 9.50%

Dividend rate = $ 2.76

Payout ratio = 168%

Dividend growth rate 3 year avg = 2.73%

Dividend growth rate 5 year avg = 18%

Consecutive dividend increases = 3 years

Paying dividends since = 2006

Total return last 3 years = 281%

Total return last 5 years = 49.51%

Notes

It announced a cash distribution for the 4th quarter of 2011 of 69 cents per unit ($2.76 on annualised basis). The distribution is payable on Feb 14, 2012 o unit holders of record as of Feb 7, 2012.

Bemis Co Inc (NYSE: BMS

Industry : Containers & Packaging

Levered Free Cash Flow: 255.74M

Net income for the past three years

Net Income ($mil) 2009 = $147

Net Income ($mil) 2010 = $205

Net Income ($mil) 2011 = $181

Total cash flow from operating activities

2008 = $293.55 million

2009 = $475.82 million

2010 = $367.99 million

Key Ratios

P/E Ratio = 18.8

P/E High - Last 5 Yrs = 22.8

P/E Low - Last 5 Yrs = 12.2

Price to Sales = 0.62

Price to Book = 2.07

Price to Tangible Book = 7.27

Price to Cash Flow = 7.62

Price to Free Cash Flow = 26.2

Quick Ratio = 1.35

Current Ratio = 2.32

LT Debt to Equity = 0.95

Total Debt to Equity = 0.98

Interest Coverage = 2.44

Inventory Turnover = 6.32

Asset Turnover = 1.23

ROE = 11.84%

Return on Assests = 4.82%

Qtrly Earnings Growth = -62.3%

0

Dividend yield 5-year average = 3.18%

Payout ratio = 0.48

Dividend growth rate 3-year avg = 3.11%

Dividend growth rate 5-year avg = 3.04%

Consecutive dividend increases = 19 years

Paying dividends since = 1922

Total return last 3 years = 71.98%

Total return last 5 years = 6.13%

Notes

It has a decent levered free cash flow $255 million, a good quick ratio of 1.35, a 3-year rate of return of 72%, a decent current ratio of 2.32 and has consecutively increased dividends for 19 years. On the negative side, quarterly earnings growth took a big hit (-62%). It also sports a very low payout ratio of 48%.

Nucor Corp.

Industry : Non-Precious Metals

Levered Free Cash Flow: 541.03M

Net income for the past three years

Net Income ($mil) 2009 = $-294

Net Income ($mil) 2010 = $134

Net Income ($mil) 2011 = $778

Total cash flow from operating activities

2008 = $2.5 billion

2009 = $1.18 billion

2010 = $873.41 million

Key Ratios

P/E Ratio = 17.9

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

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

Price to Sales = 0.7

Price to Book = 1.8

Price to Tangible Book = 2.88

Price to Cash Flow = 10.3

Price to Free Cash Flow = 53.6

Quick Ratio = 1.97

Current Ratio = 2.8

LT Debt to Equity = 0.53

Total Debt to Equity = 0.47

Interest Coverage = 6.58

Inventory Turnover = 8.65

Asset Turnover = 1.37

ROE = 9.95%

Return on Assests = 5.2%

Qtrly Earnings Growth = N/A

0

Dividend yield 5-year average = 2.74%

Payout ratio = 0.61

Dividend growth rate 3-year avg = -7.73%

Dividend growth rate 5-year avg = 22.28%

Consecutive dividend increases = 39 years

Paying dividends since = 1973

Total return last 3 years = 20.82%

Total return last 5 years = -18.22%

Notes

Net income and cash flow have generally been trending upward for the past 3 years. It has strong 5-year dividend growth rate of 22%, a manageable payout ratio of 61%, a good LT debt to Equity ratio of 0.47, a good quick ratio of 1.97, a strong current ratio of 2.8 and decent interest coverage of 6.58. Finally, it has a stellar record of consecutively increasing dividend payments for 39 years.

Northwest Natural Gas Co. (NYSE: NWN

Industry: Gas Utilities

Levered Free Cash Flow : -27.14M

Net income for the past three years

Net Income ($mil) 2009 = $75

Net Income ($mil) 2010 = $73

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

Total cash flow from operating activities

2008 = $34.73 million

2009 = $240.34 million

2010 = $126.47 million

Key Ratios

P/E Ratio = 20

P/E High - Last 5 Yrs = 30.1

P/E Low - Last 5 Yrs = 7.7

Price to Sales = 1.52

Price to Book = 1.85

Price to Tangible Book = 1.85

Price to Cash Flow = 9.33

Price to Free Cash Flow = 53.8

Quick Ratio = 0.53

Current Ratio = N/A

LT Debt to Equity = 0.86

Total Debt to Equity = 0.86

Interest Coverage = N/A

Inventory Turnover = 8.07

Asset Turnover = 0.33

ROE = 9.71%

Return on Assests = 2.67%

Qtrly Earnings Growth = N/A

Dividend yield 5-year average = 3.52%

Payout ratio = 72%

Dividend growth rate 3-year avg = 4.36%

Dividend growth rate 5-year avg = 5.05%

Consecutive dividend increases = 56 years

Paying dividends since = 1952

Total return last 3 years = 24.8%

Total return last 5 years = 31.33%

Notes

Net income and operating cash flow appears to be trending downwards for the past three years, and it has a weak quick ratio of 0.53. On the bright side, the payout ratio is under 100% (72%), and it has consecutively increased dividend payments for a grand total of 56 years.

California Water Service Group (NYSE: CWT

Industry : Water Utilities

Levered Free Cash Flow : -26.15M

Net income for the past three years

Net Income ($mil) 2009 = $41

Net Income ($mil) 2010 = $38

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

Total cash flow from operating activities

2008 = $95.73 million

2009 = $72.43 million

2010 = $75.51 million

Key Ratios

P/E Ratio = 19.2

P/E High - Last 5 Yrs = 34.1

P/E Low - Last 5 Yrs = 14.6

Price to Sales = 1.54

Price to Book = 1.71

Price to Tangible Book = 1.72

Price to Cash Flow = 9.25

Price to Free Cash Flow = -17.8

Quick Ratio = 1.12

Current Ratio = .97

LT Debt to Equity = 1.05

Total Debt to Equity = 1.05

Interest Coverage = N/A

Inventory Turnover = 33.41

Asset Turnover = 0.28

ROE = 8.88%

Return on Assests = 2.25%

Qtrly Earnings Growth = 2.7%

Dividend yield 5-year average = 3.15%

Payout ratio = 62.89%

Dividend growth rate 3-year avg = 1.82%

Dividend growth rate 5-year avg = 1.3%

Consecutive dividend increases = 44 years

Paying dividends since = 1990

Total return last 3 years = -4.98%

Total return last 5 years = 5.64%

All EPS charts provided by Zacks.com and all dividend history charts were sourced from dividata.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.