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Today, we are going to look at five stocks that offer yields ranging from decent to high. Investors should not base their investment decisions on yield alone. It would be wise to get a handle on some of the key metrics mentioned below. It is okay to deploy some capital into riskier plays, but betting the house is asking for trouble.

Stock

Dividend Yield (%)

Enterprise Value

Forward PE

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

CTWS

3.10

413.25M

22.09

31.17M

-1.80%

0.48

69.68M

26.58M

DBD

3.00

2.52B

14.2

257.16M

7.50%

1.02

2.84B

215.40M

FRT

2.90

8.20B

21.67

355.31M

2.00%

1.10

554.87M

N/A

ADP

2.90

25.07B

17.82

2.20B

7.40%

0.71

10.35B

1.81B

TEF

9.80

150.96B

7.88

21.17B

-16.60%

0.98

80.66B

N/A

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.

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 balances 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.

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: Dividend Champs With Good Yields.

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 turnover ratio indicates that a company is producing and selling its good and services very quickly.

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 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. 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: NuStar Energy Vs. Peers As A Long-Term Dividend Play.

Federal Realty Investment Trust (NYSE:FRT) is our play of choice for the following reasons:

  • A good free cash flow of $199 million
  • Net income has been increasing for the past 3 years
  • Total cash flow from operating activities is more than enough to cover dividend payments
  • It has a manageable payout ratio of 69%
  • A true dividend king; it has raised its dividend for 44 years
  • It has a very strong total 3 year return of 148%
  • Even though it has a relatively low yield it has more than made up for this via capital gains. 100K invested in FRT for 10 years has grown to 496K
  • The low current and quick ratios are of some concern; however it does sport an average interest coverage ofratio 2.24. If the interest coverage ratio drops to or the 1-1.5 ranges we would start to become worried.
  • Total Debt to equity is below 1; it currently stands at 0.87
  • Revenue is projected to increase from $545 million in 2010 to $602 million in 2013
  • Funds from operations per share are projected to increase from $3.88 in 2010 to $4.46 in 2013.

Connecticut Water Service, Inc (NASDAQ:CTWS)

Industry: Water Utilities

Levered Free Cash Flow: -2.12M

Net income for the past three years

  • Net income ($mil) 2008= 9.42
  • Net Income ($mil) 2009 = $10.2
  • Net Income ($mil) 2010 = $9.79
  • Net Income ($mil) 2011 = $N/A

Total cash flow from operating activities

  • 2008 = $15.69 million
  • 2009 = $20.74 million
  • 2010 = $16.77 million

Key Ratios

  • P/E Ratio = 23.8
  • P/E High - Last 5 Yrs = 33
  • P/E Low - Last 5 Yrs = 14.5
  • Price to Sales = 3.56
  • Price to Book = 2.29
  • Price to Tangible Book = 2.33
  • Price to Cash Flow = 15.13
  • Price to Free Cash Flow = -49.6
  • Quick Ratio = 0.55
  • Current Ratio = N/A
  • LT Debt to Equity = 0.94
  • Total Debt to Equity = 0.94
  • Interest Coverage = 0.97
  • Inventory Turnover = 27.3
  • Asset Turnover = 0.17
  • ROE = 9.75%
  • Return on Assets = 2.62%
  • Qtrly Earnings Growth = -19.7%
  • Dividend yield 5 year average = 3.76%

  • Payout ratio = 73%
  • Dividend growth rate 3 year avg = 2.22%
  • Dividend growth rate 5 year avg = 2.17%
  • Consecutive dividend increases = 19 years
  • Paying dividends since = 1990
  • Total return last 3 years = 56.36%
  • Total return last 5 years = 42.73%

Notes

Net income has been trending upwards for the past three years, it has a manageable payout ratio of 73%, and has been paying dividends since 1990. On the negative side Operating income took a hit in 2010, quarterly earning's growth has turned negative, it sports weak current, quick and interest coverage ratios. We would avoid this stock as there are many other plays in this sector with better metrics.

Diebold, Inc. (NYSE:DBD)

Industry: Computer Hardware & Equipment

Levered Free Cash Flow : 148.83M

Net income for the past three years

  • Net Income ($mil) 2009 = $26
  • Net Income ($mil) 2010 = $-20
  • Net Income ($mil) 2011 = $145

Total cash flow from operating activities

  • 2009 = $296.89 million
  • 2010 = $273.36 million
  • 2011 = $215.4 million

Key Ratios

  • P/E Ratio = 17.2
  • P/E High - Last 5 Yrs = N.A.
  • P/E Low - Last 5 Yrs = N.A.
  • Price to Sales = 0.85
  • Price to Book = 2.81
  • Price to Tangible Book = 4.4
  • Price to Cash Flow = 10.51
  • Price to Free Cash Flow = 27.9
  • Quick Ratio = 1.57
  • Current Ratio = 2.1
  • LT Debt to Equity = 0.73
  • Total Debt to Equity = 0.71
  • Interest Coverage = 3.03
  • Inventory Turnover = 4.37
  • Asset Turnover = 1.13
  • ROE = 16.21%
  • Return on Assets = 5.9%
  • Qtrly Earnings Growth = N/A
  • Dividend yield 5 year average = 3.28%

  • Payout ratio = 0.48
  • Dividend growth rate 3 year avg = 3.66%
  • Dividend growth rate 5 year avg = 4.2%
  • Consecutive dividend increases = 58 years
  • Paying dividends since = 1954
  • Total return last 3 years = 88.56%
  • Total return last 5 years = -8.82%

Notes

It has a low payout ratio, a spectacular history of increasing dividends consecutively for 58 years, a good total return of 88%, a positive levered free cash flow of 1$148 million and a decent quick, current and interest coverage ratio of 1.57, 2.1 and 3.03 respectively.

Federal Realty Investment Trust

Industry: REITs

Free Cash Flow: $199 million

Net income for the past three years

  • Net Income ($mil) 2009 = $98
  • Net Income ($mil) 2010 = $123
  • Net Income ($mil) 2011 = $144

Total cash flow from operating activities

  • 2009 = $256.77 million
  • 2010 = $256.74 million
  • 2011 = $244.72 million

Key Ratios

  • P/E Ratio = 42
  • P/E High - Last 5 Yrs = 44.1
  • P/E Low - Last 5 Yrs = 19.8
  • Price to Sales = 11.13
  • Price to Book = 5.01
  • Price to Tangible Book = 5.06
  • Price to Cash Flow = 24.42
  • Price to Free Cash Flow = 400.1
  • Quick Ratio = 0.17
  • Current Ratio = 0.17
  • LT Debt to Equity = 1.75
  • Total Debt to Equity = 0.87
  • Interest Coverage = 2.24
  • Inventory Turnover = N/A
  • Asset Turnover = 0.15
  • ROE = 10.08%
  • Return on Assets = 3.78%
  • Qtrly Earnings Growth = -5.8%
  • Dividend yield 5 year average = 3.54%

  • Payout ratio = 0.69
  • Dividend growth rate 3 year avg = 2.58%
  • Dividend growth rate 5 year avg = 3.46%
  • Consecutive dividend increases = 44 years
  • Total return last 3 years = 148.74%
  • Total return last 5 years = 20.08%

Automatic Data Processing Inc. (NASDAQ:ADP)

Industry: IT Services

Levered Free Cash Flow: 1.25B

Net income for the past three years

  • Net Income ($mil) 2009 = $1333
  • Net Income ($mil) 2010 = $1211
  • Net Income ($mil) 2011 = $1254

Total cash flow from operating activities

  • 2009 = $1.57 billion
  • 2010 = $1.69 billion
  • 2011 = $1.71 billion

Key Ratios

  • P/E Ratio = 19.9
  • P/E High - Last 5 Yrs = 24.7
  • P/E Low - Last 5 Yrs = 11
  • Price to Sales = 2.54
  • Price to Book = 4.25
  • Price to Tangible Book = 11.37
  • Price to Cash Flow = 16.54
  • Price to Free Cash Flow = 58.3
  • Quick Ratio = 1.07
  • Current Ratio = 1.08
  • LT Debt to Equity = 0
  • Total Debt to Equity = 0
  • Interest Coverage = 277.05
  • Inventory Turnover = N/A
  • Asset Turnover = 0.32
  • ROE = 21.34%
  • Return on Assets = 3.82%
  • Qtrly Earnings Growth = 20.9%

  • Dividend yield 5 year average = 2.88%
  • Payout ratio = 0.6
  • Dividend growth rate 3 year avg = 7.16%
  • Dividend growth rate 5 year avg = 10.3%
  • Consecutive dividend increases = 36 years
  • Paying dividends since = 1974
  • Total return last 3 years = 70.45%
  • Total return last 5 years = 31.69%

Notes

A dividend king as it has raised dividends consecutively for 36 years. It sports a good 5 year dividend growth of 10.3%, a nice three year return of 70%, a good quarterly earnings growth rate of 20% and a spectacular interest coverage ratio of 277.

Telefonica, S.A. (NYSE:TEF)

Industry: Services

Free Cash Flow: $4.2 billion

Net income for the past three years

  • Net income ($mi) 2008 = 11032
  • Net Income ($mil) 2009 = $11072
  • Net Income ($mil) 2010 = $13375
  • Net Income ($mil) 2011 = $N/A

Total cash flow from operating activities

  • 2008 = $23.08 billion
  • 2009 = $23.17 billion
  • 2010 = $22.37 billion

Key Ratios

  • P/E Ratio = 23.5
  • P/E High - Last 5 Yrs = 15
  • P/E Low - Last 5 Yrs = 5.9
  • Price to Sales = 0.9
  • Price to Book = 2.4
  • Price to Tangible Book = -1.73
  • Price to Cash Flow = 7.72
  • Price to Free Cash Flow = -48.5
  • Quick Ratio = 0.6
  • Current Ratio = 0.62
  • LT Debt to Equity = 3
  • Total Debt to Equity = 2.33
  • Interest Coverage = 2.80
  • Inventory Turnover = 16.99
  • Asset Turnover = 0.49
  • ROE = 14.38%
  • Return on Assets = 3.19%
  • Qtrly Earnings Growth = N/A
  • Dividend yield 5 year average = 4.54%

  • Dividend growth rate 3 year avg = 28.88%
  • Dividend growth rate 5 year avg = 24.86%
  • Consecutive dividend increases = 8 years
  • Paying dividends since = 1990
  • Total return last 3 years = 30.04%
  • Total return last 5 years = 8.38%

Notes

Net income and operating cash flow have generally been trending upwards for the past three years, strong free cash flow of $4.2 billion. The weak quick ratio and current ratio are of concern. The interest coverage ratio is fair at 2.80 and we would start to get worried if it dropped down to the 1-1.5 ranges. It also sports a good five year dividend growth rate of 24.8%.

Conclusion

The markets are extremely overbought in the short to intermediate time frames. Long term investors should wait for a strong pullback before committing fresh money to this market.

Earnings and growth estimate charts sourced from dailyfinance.com; dividend history charts sourced from dividata.com.

Source: 5 Dividend Kings With Healthy Yields

Additional disclosure: 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.