5 Dividend Champs With Great Growth Potential

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 |  Includes: BWP, CMLP, CVX, DMLP, EPD
by: Tactical Investor

Most investors make the mistake of selecting dividend stocks on yield alone. While it's OK to risk a small amount of capital based on this strategy, employing this as one's main strategy is asking for trouble. Our picks (especially our favorite play) have to generally meet most of the criteria listed below.

  • 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 OK, 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. Some examples are Jarden Corporation Common Stock, Potash Corporation of Saskatche, Cerner Corporation, etc.
  • Sales - They should generally be trending upwards for the past 3-4 years.
  • Levered free cash flow - Tthis 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 Leggett & Platt, Incorporated and Procter & Gamble Company
  • 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 qa better handle of the ratios explained below you can create your own list of criteria. Individuals searching for other ideas might find this article to be of interest: Yanzhou Coal Mining Co. Ltd: A Good Long-Term Play on China.

Chevron Corp (NYSE:CVX) is play of choice for the following reasons:

  • A decent quarterly revenue growth rate of 13.3%.
  • A great three year total return of 101%.
  • A strong free cash flow yield of 11%.
  • A five year dividend growth rate of 8.5%.
  • Net income has surged from $10 billion in 2009 to roughly 27 billion in 2011.
  • Cash flow per share has jumped from $10.86 in 2009 to $19.99 in 2011, an increase of over 83%.
  • EBITA has increased from $3.06 billion in 2009 to $6.05 billion in 2011; an increase of almost 100%.
  • In 2009 sales came in at $17.1 billion and in 2011, they totaled $25.3 billion, a 47% increase.
  • A very low payout ratio of 24% and excellent five year average payout ratio of only 31%.
  • A good five year average ROE 21.28%.
  • A ROI of 21.68.
  • It has a good current ratio and quick ratio of 1.58 and 1.42 respectively.
  • It has consecutively increased dividends for 19 years.
  • Full year earnings for 2011 set a new milestone at $26.9 billion.
  • Sales for the fourth quarter were $58 billion, up from $52 billion a year ago.
  • A natural gas liquefaction plant has been slated for construction in Australia; the Wheatstone Liquefied natural gas project.
  • Two new natural gas discoveries were announced in the Carnarvon Basin in Australia; the gas from here could be used to supply the Wheatstone NGL plants once its up and running.
  • They added 1.67 billion barrels of net oil equivalent reserves in 2011; this equates to 171% of its net oil equivalent production for the year.
  • 100K invested for 10 years would have grown to 285K

Company: Chevron Corp

Levered Free Cash Flow = 13.87B

Basic Key ratios

Percentage Held by Insiders = 0.16

Market Cap ($mil) = 216695

Number of Institutional Sellers 12 Weeks = 1

3 Month % Chg Short Interest = n/a

Growth

Net Income ($mil) 12/2011 = 26895

Net Income ($mil) 12/2010 = 19024

Net Income ($mil) 12/2009 = 10483

EBITDA ($mil) 12/2011 = 60545

EBITDA ($mil) 12/2010 = 45168

EBITDA ($mil) 12/2009 = 30666

Cash Flow ($/share) 12/2011 = 19.99

Cash Flow ($/share) 12/2010 = 15.91

Cash Flow ($/share) 12/2009 = 10.86

Sales ($mil) 12/2011 = 253706

Sales ($mil) 12/2010 = 204928

Sales ($mil) 12/2009 = 171636

Dividend history

Div Yield = 2.96

Div Yield 5 Yr Avg 09/2011 = 3.22

Annual Dividend 12/2011 = 3.09

Annual Dividend 12/2010 = 2.84

Forward Yield = 2.96

R-squared Div Growth 09/2011 = 0.93

Dividend sustainability

Payout Ratio 09/2011 = 0.24

Payout Ratio 06/2011 = 0.23

Payout Ratio 5 Yr Avg 12/2011 = N/A

Payout Ratio 5 Yr Avg 09/2011 = 0.31

Payout Ratio 5 Yr Avg 06/2011 = 0.31

Change in Payout Ratio = -0.07

Performance

Percentage change Price 52 Wks Relative to S&P 500 = 1.91

Avg EPS Surprise Last 4 Qtr = 4.16

EPS % Change F2/F1 = 3.68

Next 3-5 Yr Estimate EPS Growth rate = 7.54

EPS Growth Q(1)/Q(-3) = -102.38

5 Yr Historical EPS Growth 09/2011 = 5.11

ROE 5 Yr Avg 12/2011 = N/A

ROE 5 Yr Avg 09/2011 = 21.28

ROE 5 Yr Avg 06/2011 = 21.43

Return on Investment 09/2011 = 21.1

Return on Investment 06/2011 = 21.68

Debt/Tot Cap 5 Yr Avg 09/2011 = 8.36

Debt/Tot Cap 5 Yr Avg 06/2011 = 8.5

Current Ratio 09/2011 = 1.58

Current Ratio 06/2011 = 1.64

Current Ratio 5 Yr Avg = 1.4

Quick Ratio = 1.42

Cash Ratio = 0.77

Valuation

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

Book Value Qtr ($/share) 09/2011 = 61.35

Book Value Qtr ($/share) 06/2011 = 60.75

Anl EPS before NRI 12/2007 = 8.63

Anl EPS before NRI 12/2008 = 11.38

Anl EPS before NRI 12/2009 = 4.84

Anl EPS before NRI 12/2010 = 9.45

Anl EPS before NRI 12/2011 = 13.44

Price/ Book = 1.79

Price/ Cash Flow = 5.48

Price/ Sales = 0.85

EV/EBITDA 12 Mo = 3.41

P/E/G F1 = 1.14

Q1 Std Dev/ Consensus = 0.07

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

R-squared EPS Growth 09/2011 = 0.08

P/E F1/ LT EPS Gr = 1.14

Standard Déviation Cons Curent Quarter= 0.2

Median Estimate Next Qtr = 3.15

Number of Analyst in Cons Q3 = 9

Company: Dorchester Mnrl (NASDAQ:DMLP)

Levered Free Cash Flow = 38.29M

Basic Key ratios

Percentage Held by Insiders = 7.8

Market Cap ($mil) = 799

Number of Institutional Sellers 12 Weeks = N/A

3 Month % Chg Short Interest = n/a

Growth

Net Income ($mil) 12/2011 = 41

Net Income ($mil) 12/2010 = 34

Net Income ($mil) 12/2009 = 21

EBITDA ($mil) 12/2011 = 61

EBITDA ($mil) 12/2010 = 53

EBITDA ($mil) 12/2009 = 37

Cash Flow ($/share) 12/2011 = 1.93

Cash Flow ($/share) 12/2010 = 1.72

Cash Flow ($/share) 12/2009 = 1.25

Div 5yr Growth 12/2011 = N/A

Sales ($mil) 12/2011 = 69

Sales ($mil) 12/2010 = 61

Sales ($mil) 12/2009 = 44

Dividend history

Div Yield = 6.89

Div yield 5 Yr Avg 09/2011 = 7.45

Annual Dividend 12/2011 = 1.65

Annual Dividend 12/2010 = 1.65

Forward Yield = 6.89

Div 5yr Growth 12/2011 = N/A

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

R-squared Div Growth 09/2011 = 0.15

Dividend sustainability

Payout Ratio 09/2011 = 1.37

Payout Ratio 06/2011 = 1.41

Payout Ratio 5 Yr Avg 12/2011 = N/A

Payout Ratio 5 Yr Avg 09/2011 = 1.51

Payout Ratio 5 Yr Avg 06/2011 = N/A

Change in Payout Ratio = -0.14

Performance

Percentage change Price 52 Wks Relative to S&P 500 = -9.55

ROE 5 Yr Avg 09/2011 = 21.38

ROE 5 Yr Avg 06/2011 = 20.61

Return on Investment 09/2011 = 29.14

Return on Investment 06/2011 = 25.43

Current Ratio 12/2011 = N/A

Current Ratio 09/2011 = 50.8

Current Ratio 06/2011 = 17.43

Current Ratio 5 Yr Avg = 24.92

Quick Ratio = 50.8

Cash Ratio = 25.43

Interest Coverage 12/2011 = N/A

Interest Coverage 09/2011 = N/A

Interest Coverage 06/2011 = N/A

Valuation

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

Book Value Qtr ($/share) 09/2011 = 4.63

Book Value Qtr ($/share) 06/2011 = 4.68

Anl EPS before NRI 12/2007 = N/A

Anl EPS before NRI 12/2008 = 2.3

Anl EPS before NRI 12/2009 = 0.72

Anl EPS before NRI 12/2010 = 1.11

Anl EPS before NRI 12/2011 = 1.33

Price/ Book = 5.62

Price/ Cash Flow = 13.5

Price/ Sales = 11.5

EV/EBITDA 12 Mo = 12.97

Company: Enterprise Prod (NYSE:EPD)

Free Cash Flow = $-537 million.

Basic Key ratios

Percentage Held by Insiders = 34.7

Market Cap ($mil) = 45560

Number of Institutional Sellers 12 Weeks = N/A

3 Month % Chg Short Interest = n/a

Growth

Net Income ($mil) 12/2011 = 2047

Net Income ($mil) 12/2010 = 321

Net Income ($mil) 12/2009 = 204

EBITDA ($mil) 12/2011 = 3867

EBITDA ($mil) 12/2010 = 3137

EBITDA ($mil) 12/2009 = 2690

Cash Flow ($/share) 12/2011 = 3.34

Cash Flow ($/share) 12/2010 = 1.63

Cash Flow ($/share) 12/2009 = 3.15

Div 5yr Growth 12/2011 = N/A

Sales ($mil) 12/2011 = 44313

Sales ($mil) 12/2010 = 33739

Sales ($mil) 12/2009 = 25511

Dividend history

Div Yield = 4.74

Div Yied 5 Yr Avg 09/2011 = 6.78

Annual Dividend 12/2011 = 2.41

Annual Dividend 12/2010 = 2.29

Forward Yield = 4.74

Div 5yr Growth 12/2011 = N/A

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

R-squared Div Growth 09/2011 = 1

Dividend sustainability

Payout Ratio 09/2011 = 1.11

Payout Ratio 06/2011 = 1.21

Payout Ratio 5 Yr Average 09/2011 = 1.35

Change in Payout Ratio = -0.24

Performance

Percentage change Price 52 Wks Relative to S&P 500 = 17.03

5 Yr Historical EPS Growth 09/2011 = 15.84

ROE 5 Yr Avg 12/2011 = N/A

ROE 5 Yr Avg 09/2011 = 12.38

ROE 5 Yr Avg 06/2011 = 12.03

Return on Investment 12/2011 = N/A

Return on Investment 09/2011 = 7.45

Return on Investment 06/2011 = 6.08

Debt/Tot Cap 5 Yr Avg 12/2011 = N/A

Debt/Tot Cap 5 Yr Avg 09/2011 = 54.34

Debt/Tot Cap 5 Yr Avg 06/2011 = 53.95

Current Ratio 12/2011 = N/A

Current Ratio 09/2011 = 0.82

Current Ratio 06/2011 = 0.83

Current Ratio 5 Yr Avg = 0.94

Quick Ratio = 0.67

Cash Ratio = 0.06

Interest Coverage 12/2011 = N/A

Interest Coverage 09/2011 = 4.97

Interest Coverage 06/2011 = 3.6

Valuation

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

Book Value Qtr ($/share) 09/2011 = 14.02

Book Value Qtr ($/share) 06/2011 = 12.78

Anl EPS before NRI 12/2007 = 0.96

Anl EPS before NRI 12/2008 = 1.85

Anl EPS before NRI 12/2009 = 1.81

Anl EPS before NRI 12/2010 = 1.39

Anl EPS before NRI 12/2011 = 2.21

Price/ Book = 3.73

Price/ Cash Flow = 15.65

Price/ Sales = 1.03

EV/EBITDA 12 Mo = 15.4

P/E/G F1 = 3.34

Q1 Std Dev/ Consensus = 0.07

R-squared EPS Growth 09/2011 = 0.75

Median Estimate Next Qtr = 0.58

Number of analysts in Consensus Q3 = 11

Company: Crestwood Midst (NYSE:CMLP)

Levered Free Cash Flow = 24.68M

Basic Key ratios

Percentage Held by Insiders = N/A

Market Cap ($mil) = 1151

Number of Institutional Sellers 12 Weeks = N/A

3 Month % Chg Short Interest = n/a

Growth

Net Income ($mil) 12/2011 = 45

Net Income ($mil) 12/2010 = 35

Net Income ($mil) 12/2009 = 32

EBITDA ($mil) 12/2011 = 107

EBITDA ($mil) 12/2010 = 70

EBITDA ($mil) 12/2009 = 66

Cash Flow ($/share) 12/2011 = 2.11

Cash Flow ($/share) 12/2010 = 3.1

Cash Flow ($/share) 12/2009 = 4.73

Div 5yr Growth 12/2011 = N/A

Sales ($mil) 12/2011 = 206

Sales ($mil) 12/2010 = 114

Sales ($mil) 12/2009 = 92

Dividend history

Div Yield = 6.72

Div Yield 5 Yr Avg 09/2011 = 7.28

Annual Dividend 12/2011 = 1.81

Annual Dividend 12/2010 = 1.62

Forward Yield = 6.72

Div 5yr Growth 12/2011 = N/A

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

R-squared Div Growth 09/2011 = 0.66

Dividend sustainability

Payout Ratio 09/2011 = 1.7

Payout Ratio 06/2011 = 1.53

Payout Ratio 5 Yr Avg 12/2011 = N/A

Payout Ratio 5 Yr Avg 09/2011 = 1.4

Payout Ratio 5 Yr Avg 06/2011 = 1.37

Change in Payout Ratio = 0.3

Performance

Percentage change Price 52 Wks Relative to S&P 500 = -8.58

5 Yr Historical EPS Growth 09/2011 = 7.35

ROE 5 Yr Avg 12/2011 = N/A

ROE 5 Yr Avg 09/2011 = 19.36

ROE 5 Yr Avg 06/2011 = 19.84

Return on Investment 12/2011 = N/A

Return on Investment 09/2011 = 6

Return on Investment 06/2011 = 6.62

Debt/Tot Cap 5 Yr Avg 12/2011 = N/A

Debt/Tot Cap 5 Yr Avg 09/2011 = 50.75

Debt/Tot Cap 5 Yr Avg 06/2011 = 50.61

Current Ratio 12/2011 = N/A

Current Ratio 09/2011 = 0.97

Current Ratio 06/2011 = 0.96

Current Ratio 5 Yr Avg = 0.63

Quick Ratio = 0.97

Cash Ratio = 0.06

Interest Coverage 12/2011 = N/A

Interest Coverage 09/2011 = 2.65

Interest Coverage 06/2011 = 2.89

Valuation

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

Book Value Qtr ($/share) 09/2011 = 11.55

Book Value Qtr ($/share) 06/2011 = 11.73

Anl EPS before NRI 12/2007 = 0.2

Anl EPS before NRI 12/2008 = 0.96

Anl EPS before NRI 12/2009 = 1.28

Anl EPS before NRI 12/2010 = 1.17

Anl EPS before NRI 12/2011 = 1.13

Price/ Book = 2.53

Price/ Cash Flow = 13.85

Price/ Sales = 5.59

EV/EBITDA 12 Mo = 15.55

P/E/G F1 = 4.62

Q1 Std Dev/ Consensus = 0.17

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

R-squared EPS Growth 09/2011 = 0.24

Std Dev Cons Current Qtr = 0.05

Median Estimate Next Qtr = 0.25

Number of analysts in Consensus Q3 = 5

Company: Boardwalk Pipln (NYSE:BWP)

Levered Free Cash Flow = 234.94M

Basic Key ratios

Percentage Held by Insiders = N/A

Market Cap ($mil) = 5461

Number of Institutional Sellers 12 Weeks = N/A

3 Month % Chg Short Interest = n/a

Growth

Net Income ($mil) 12/2011 = 220

Net Income ($mil) 12/2010 = 289

Net Income ($mil) 12/2009 = 163

EBITDA ($mil) 12/2011 = 614

EBITDA ($mil) 12/2010 = 667

EBITDA ($mil) 12/2009 = 508

Cash Flow ($/share) 12/2011 = 2.48

Cash Flow ($/share) 12/2010 = 2.71

Cash Flow ($/share) 12/2009 = 1.95

Div 5yr Growth 12/2011 = N/A

Sales ($mil) 12/2011 = 1139

Sales ($mil) 12/2010 = 1117

Sales ($mil) 12/2009 = 909

Dividend history

Div Yield = 7.71

Div Yield 5 Yr Avg 09/2011 = 7.04

Annual Dividend 12/2011 = 2.1

Annual Dividend 12/2010 = 2.03

Forward Yield = 7.71

Div 5yr Growth 12/2011 = N/A

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

R-squared Div Growth 09/2011 = 0.96

Dividend sustainability

Payout Ratio 09/2011 = 1.6

Payout Ratio 06/2011 = 1.5

Payout Ratio 5 Yr Avg 09/2011 = 1.36

Payout Ratio 5 Yr Avg 06/2011 = 1.33

Change in Payout Ratio = 0.24

Performance

Percentage change Price 52 Wks Relative to S&P 500 = -20.41

5 Yr Historical EPS Growth 09/2011 = -7.92

ROE 5 Yr Avg 12/2011 = N/A

ROE 5 Yr Avg 09/2011 = 9.79

ROE 5 Yr Avg 06/2011 = 10.3

Return on Investment 12/2011 = N/A

Return on Investment 09/2011 = 4.02

Return on Investment 06/2011 = 4.19

Debt/Tot Cap 5 Yr Avg 12/2011 = N/A

Debt/Tot Cap 5 Yr Avg 09/2011 = 48.76

Debt/Tot Cap 5 Yr Avg 06/2011 = 48.84

Current Ratio 12/2011 = N/A

Current Ratio 09/2011 = 0.85

Current Ratio 06/2011 = 1.26

Current Ratio 5 Yr Avg = 1.22

Quick Ratio = 0.85

Cash Ratio = 0.2

Interest Coverage 09/2011 = 2.88

Interest Coverage 06/2011 = 2.19

Valuation

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

Book Value Qtr ($/share) 09/2011 = 16.14

Book Value Qtr ($/share) 06/2011 = 16.35

Anl EPS before NRI 12/2007 = 1.87

Anl EPS before NRI 12/2008 = 1.98

Anl EPS before NRI 12/2009 = 0.88

Anl EPS before NRI 12/2010 = 1.5

Anl EPS before NRI 12/2011 = 1.31

Price/ Book = 1.7

Price/ Cash Flow = 11.09

Price/ Sales = 4.8

EV/EBITDA 12 Mo = 14.08

P/E/G F1 = 4.05

Q1 Std Dev/ Consensus = 0.09

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

R-squared EPS Growth 09/2011 = 0.24

Median Estimate Next Qtr = 0.26

Number of analysts in Consensus Q3 = 10

Conclusion

Long term investors should wait for a strong pullback before committing new funds to this market. A pullback in the 7-10% ranges would qualify as a strong pullback.

EPS, EPS surprise, broker recommendations and price and consensus charts sourced from zacks.com. Earnings estimates and growth rate charts sourced from dailyfinance.com. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com. Earnings VS expectation's charts sourced from smartmoney.com. Earnings summary extracted from chevron.com

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

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.