2 Good, And 3 Middle Of The Road Dividend Plays

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 |  Includes: BCS, HRZN, LSE, RSH, UNTD
by: Tactical Investor

As the markets are extremely overbought, it would be prudent and wise for long-term investors to wait for a decent pullback before committing large sums of money to this market. Patience is warranted as markets tend to overshoot to the upside and downside nowadays. Investors looking for additional streams of income can consider the following two options.

  1. Investors can sell covered calls.

  2. If one is bullish on a stock, one can sell naked puts and open an additional stream of income. For example, if you like Clarcor (NYSE:CLC) but only find it attractive in the $44-$46 ranges. You could sell puts with a strike at $45. If the stock trades below this price on the last day, you will have to buy the stock. However, your final price will be much lower as you would subtract the premium you received from the price you paid for the shares. On the other hand, if the stock does not close below this price, then you get to keep the premium.

Even though we have picked United Online, Inc. (NASDAQ:UNTD) as our play of choice , it comes with a caveat. Investors who are not willing to take on any risk should avoid it.

United Online, Inc. is our play of choice for the following reasons:

  • Despite its woes, it sports a positive levered free cash flow of $78.4 million.

  • Net income appears to be stabilizing as it's only $2 million lower than 2010. In 2010, net income came in at $54 million and in 2011, net income was $52 million.

  • Total liabilities have dropped from $617 million in 2009 to $516 million in 2011.

  • The company has a very strong free cash flow yield of 19.6%

  • EPS is projected to remain unchanged for 2012 but is expected to increase from $57 cents to 70 cents. There is even a chance that it could beat the consensus estimates for 2012.

  • Annual EPS before NRI increased from 79 cents in 2010 to 84 cents in 2011.

  • It sports a good yield of 8.26%

  • It sports a decent five year dividend average of 6.5%, which is more than double the current rate of inflation.

  • It has a very low payout ratio of 47%

  • It has a decent current and quick ratio of 1.16 respectively.

  • It has a good interest rate coverage ratio of 6.96.

  • It sports a five year ROE of 18.14%

  • It has a decent three year total return of 50%

  • The percentage short of float is 8.5%, which makes it a pretty good candidate for a short squeeze.

  • It has a good 5 year sales growth rate of 14.85%

  • A decent long-term debt to equity ratio of 0.54

  • $100K invested for 10 years would have grown to $340K; dividends were not reinvested, if they were, the rate of return would have been a lot higher.

Technical outlook

The stock has taken a beating and the worst news appears to be priced in. It needs to close above $5.00 on strong volume for the picture to turn from bearish to neutral. A weekly close above $6.00 on above average volume will turn the outlook bullish and signify that a trend change is in the works. The strongest sign that this stock is on the mend would come from a monthly close above $6.50.

As many key ratios are featured in this article, it would be in the investor's best interest to get a handle on the more important ones which are listed below. Getting a handle on these ratios could help you come up with your system for spotting potential winners.

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 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.

Cash ratio- this is the ratio of the company's total cash and cash equivalents to its current liabilities; this ratio is used a measure of a company's liquidity. It allows investors to determine how fast the company would be able to pay its short-term debts if push came to shove. Higher numbers are better because it makes it easier for a company to ask for new loans, increase in credit lines, etc.

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 Analyzing 5 Dividend Plays: 1 Excellent, 2 Good And 2 Middling.

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.

Price to free cash flow- is obtained by dividing the share price by free cash flow per share. Higher ratios are associated with more expensive companies and vice versa; lower ratios are generally more attractive. If a company generated 400 million in cash flow and then spent 100 million on capital expenditure, then its free flow is $300 million. If the share price is 100 and the free cash flow per share are $5, then company trades at 20 times-free cash flow. This ratio is also useful because it can be used as a comparison to the average within the industry; this gives you an idea of how the company you are interested in holds up to the other companies within the industry.

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.

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. Additional key metrics are addressed in this article A Review Of 5 Outstanding Dividend Increasing Stocks

Company : United Online Inc

  • Levered Free Cash Flow = 78.46M

Basic Key ratios

  • Percentage Held by Insiders = 5.3

  • Market Cap ($mil) = 436

  • Number of Institutional Sellers 12 Weeks = 4

Growth

  • Net Income ($mil) 12/2011 = 52

  • Net Income ($mil) 12/2010 = 54

  • Net Income ($mil) 12/2009 = 70

  • 12 months Net Income this Quarterly/ 12 months Net Income 4Q's ago = -1.49

  • Quarterly Net Income this Quarterly/ same Quarter year ago = -19.46

  • EBITDA ($mil) 12/2011 = 157

  • EBITDA ($mil) 12/2010 = 178

  • EBITDA ($mil) 12/2009 = 218

  • Net Income Reported Quarterly ($mil) = 12

  • Annual Net Income this Yr/ Net Income last Yr = -3.63

  • Cash Flow ($/share) 12/2011 = 1.5

  • Cash Flow ($/share) 12/2010 = 1.54

  • Cash Flow ($/share) 12/2009 = 1.92

  • Sales ($mil) 12/2011 = 898

  • Sales ($mil) 12/2010 = 921

  • Sales ($mil) 12/2009 = 990

  • Annual EPS before NRI 12/2008 = 0.85

  • Annual EPS before NRI 12/2009 = 1.14

  • Annual EPS before NRI 12/2010 = 0.79

  • Annual EPS before NRI 12/2011 = 0.84

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Dividend history

  • Dividend Yield = 8.26

  • Dividend Yield 5 Year Average = 6.5%

  • Annual Dividend 12/2011 = 0.4

  • Annual Dividend 12/2010 = 0.4

  • Forward Yield = 8.26

  • Dividend 5 year Growth 12/2011 = -16%

Dividend sustainability

  • Payout Ratio 06/2011 = 0.47

  • Payout Ratio 5 Year Average 06/2011 = 0.59

  • Change in Payout Ratio = -0.12

Performance

  • Percentage Change Price 52 Weeks Relative to S&P 500 = -27

  • Next 3-5 Year Estimate EPS Growth rate = 15

  • EPS Growth Quarterly(1)/Q(-3) = 108.7

  • ROE 5 Year Average 06/2011 = 18.14

  • Return on Investment 06/2011 = 10.48

  • Debt/Total Cap 5 Year Average 06/2011 = 28.83

  • Current Ratio 06/2011 = 1.16

  • Current Ratio 5 Year Average = 1.18

  • Quick Ratio = 1.16

  • Cash Ratio = 0.94

  • Interest Coverage = 6.96

Valuation

  • Book Value Quarterly = 5.39

  • Price/ Book = 0.9

  • Price/ Cash Flow = 3.23

  • Price/ Sales = 0.49

  • EV/EBITDA 12 Mo = 3.55

Notes

In comparison to the other plays on this list, it would fall under the "good category" but it comes with an above average dose of risk.

Company : Barclay Plc-Adr (NYSE:BCS)

  • Free Cash Flow = $ 42 billion

Basic Key ratios

  • Percentage Held by Insiders = 0.02

  • Market Cap ($mil) = 50923

Growth

  • Net Income ($mil) 12/2011 = 6339

  • Net Income ($mil) 12/2010 = 7033

  • Net Income ($mil) 12/2009 = 16110

  • 12 months Net Income this Quarterly/ 12 months Net Income 4Q's ago = -7.45

  • Quarterly Net Income this Quarterly/ same Quarter year ago = -67.77

  • EBITDA ($mil) 12/2011 = 20021

  • EBITDA ($mil) 12/2010 = 31270

  • EBITDA ($mil) 12/2009 = 27575

  • Net Income Reported Quarterly ($mil) = 560

  • Annual Net Income this Yr/ Net Income last Yr = -9.87

  • Cash Flow ($/share) 12/2010 = 10.25

  • Cash Flow ($/share) 12/2009 = 10.99

  • Sales ($mil) 12/2011 = 52998

  • Sales ($mil) 12/2010 = 61633

  • Sales ($mil) 12/2009 = 49825

  • Annual EPS before NRI 12/2007 = 7.27

  • Annual EPS before NRI 12/2008 = 4.36

  • Annual EPS before NRI 12/2009 = 5.71

  • Annual EPS before NRI 12/2010 = 1.88

  • Annual EPS before NRI 12/2011 = 1.54

Dividend history

  • Dividend Yield = 2.36

  • Dividend Yield 5 Year Average = 5.40%

  • Annual Dividend 12/2011 = 0.35

  • Annual Dividend 12/2010 = 0.27

  • Forward Yield = 2.36

  • Dividend 5 year Growth 12/2011 = 9.18

Dividend sustainability

  • Payout Ratio 06/2011 = 0.15

Performance

  • Percentage Change Price 52 Weeks Relative to S&P 500 = -20.12

  • Next 3-5 Year Estimate EPS Growth rate = 29.49

  • EPS Growth Quarterly(1)/Q(-3) = 167.27

  • Return on Investment 06/2011 = 2.26

  • Debt/Total Cap 5 Year Average 06/2011 = 78.97

  • Current Ratio 06/2011 = 1.1

  • Current Ratio 5 Year Average = 1.42

  • Quick Ratio = 1.1

  • Cash Ratio = 0.74

  • Interest Coverage Quarterly = 0.66

Valuation

  • Book Value Quarterly = 33.18

  • Price/ Book = 0.49

  • Price/ Cash Flow = 1.58

  • Price/ Sales = 1.06

  • EV/EBITDA 12 Mo = -18.29

Company : Radioshack Corp (NYSE:RSH)

  • Levered Free Cash Flow = 163.04M

Basic Key ratios

  • Percentage Held by Insiders = 0.53

  • Market Cap ($mil) = 658

Growth

  • Net Income ($mil) 12/2011 = 72

  • Net Income ($mil) 12/2010 = 206

  • Net Income ($mil) 12/2009 = 205

  • 12 months Net Income this Quarterly/ 12 months Net Income 4Q's ago = -64.97

  • Quarterly Net Income this Quarterly/ same Quarter year ago = -79.12

  • EBITDA ($mil) 12/2011 = 253

  • EBITDA ($mil) 12/2010 = 452

  • EBITDA ($mil) 12/2009 = 465

  • Net Income Reported Quarterlytr ($mil) = 12

  • Annual Net Income this Yr/ Net Income last Yr = -64.97

  • Cash Flow ($/share) 12/2011 = 1.98

  • Cash Flow ($/share) 12/2010 = 2.68

  • Cash Flow ($/share) 12/2009 = 2.49

  • Sales ($mil) 12/2011 = 4378

  • Sales ($mil) 12/2010 = 4473

  • Sales ($mil) 12/2009 = 4276

  • Annual EPS before NRI 12/2007 = 1.74

  • Annual EPS before NRI 12/2008 = 1.52

  • Annual EPS before NRI 12/2009 = 1.63

  • Annual EPS before NRI 12/2010 = 1.68

  • Annual EPS before NRI 12/2011 = 0.95

Dividend history

  • Dividend Yield = 1.89

  • Dividend Yield 5 Year Average =2.30%

  • Annual Dividend 12/2011 = 0.5

  • Annual Dividend 12/2010 = 0.25

  • Forward Yield = 1.89

  • Dividend 5 year Growth 12/2011 = 10.4%

Dividend sustainability

  • Payout Ratio 06/2011 = 0.54

  • Payout Ratio 5 Year Average 06/2011 = 0.18

  • Change in Payout Ratio = 0.36

Performance

  • Percentage Change Price 52 Weeks Relative to S&P 500 = -57.23

  • Next 3-5 Year Estimate EPS Growth rate = 8

  • EPS Growth Quarterly(1)/Q(-3) = 176.47

  • ROE 5 Year Average 06/2011 = 22.97

  • Return on Investment 06/2011 = 6.86

  • Debt/Total Cap 5 Year Average 06/2011 = 35.71

  • Current Ratio 06/2011 = 2.73

  • Current Ratio 5 Year Average = 2.69

  • Quick Ratio = 1.61

  • Cash Ratio = 1.07

  • Interest Coverage Quarterly = 1.87

Valuation

  • Book Value Quarterly = 7.55

  • Price/ Book = 0.88

  • Price/ Cash Flow = 3.34

  • Price/ Sales = 0.15

  • EV/EBITDA 12 Mo = 2.91

Company : Caplease Inc (NYSE:LSE)

  • Levered Free Cash Flow = 59.03M

Basic Key ratios

  • Percentage Held by Insiders = 4.5

  • Market Cap ($mil) = 276

Growth

  • Net Income ($mil) 12/2011 = -2

  • Net Income ($mil) 12/2010 = -13

  • Net Income ($mil) 12/2009 = -14

  • 12 months Net Income this Quarterly/ 12 months Net Income 4Q's ago = 86.04

  • Quarterly Net Income this Quarterly/ same Quarter year ago = 282.34

  • EBITDA ($mil) 12/2011 = 47

  • EBITDA ($mil) 12/2010 = 39

  • EBITDA ($mil) 12/2009 = 47

  • Net Income Reported Quarterlytr ($mil) = 16

  • Annual Net Income this Yr/ Net Income last Yr = 86.07

  • Cash Flow ($/share) 12/2011 = 0.71

  • Cash Flow ($/share) 12/2010 = 0.68

  • Cash Flow ($/share) 12/2009 = 0.81

  • Sales ($mil) 12/2011 = 162

  • Sales ($mil) 12/2010 = 166

  • Sales ($mil) 12/2009 = 178

  • Annual EPS before NRI 12/2007 = 1.03

  • Annual EPS before NRI 12/2008 = 1.1

  • Annual EPS before NRI 12/2009 = 1.05

  • Annual EPS before NRI 12/2010 = 0.67

  • Annual EPS before NRI 12/2011 = 0.87

Dividend history

  • Dividend Yield = 6.24

  • Dividend Yield 5 Year Average =10.4%

  • Annual Dividend 12/2011 = 0.26

  • Annual Dividend 12/2010 = 0.25

  • Forward Yield = 6.24

  • Dividend 5 year Growth =-13%

Dividend sustainability

  • Payout Ratio 06/2011 = 0.29

  • Payout Ratio 5 Year Average 06/2011 = 0.45

  • Change in Payout Ratio = -0.17

Performance

  • Percentage Change Price 52 Weeks Relative to S&P 500 = -33.59

  • Next 3-5 Year Estimate EPS Growth rate = 4

  • EPS Growth Quarterly(1)/Q(-3) = 1-158.82

  • ROE 5 Year Average 06/2011 = -2.24

  • Return on Investment 06/2011 = -2.84

  • Debt/Total Cap 5 Year Average 06/2011 = 59.75

  • Current Ratio 06/2011 = 1.19

  • Current Ratio 5 Year Average = 1.4

  • Quick Ratio = 1.19

  • Cash Ratio = 0.81

  • Interest Coverage Quarterly = 0.32

Valuation

  • Book Value Quarterly = 4.71

  • Price/ Book = 0.89

  • Price/ Cash Flow = 5.92

  • Price/ Sales = 1.67

  • EV/EBITDA 12 Mo = 9.27

Company : Horizon Technology (NASDAQ:HRZN)

  • Free Cash Flow = $-4 million

Basic Key ratios

  • Percentage Held by Insiders = 0.71

  • Market Cap ($mil) = 129

Growth

  • Net Income ($mil) 12/2011 = 11

  • Net Income ($mil) 12/2010 = 14.7

  • Net Income ($mil) 12/2009 = 9.3

  • Gross profit ($mil) 12/2011= 21.3

  • Gross profit ($mil) 12/2010=14.8

  • Gross profit ($mil) 12/2009=10.8

  • Operating income ($mil) 12/2011= 10.7

  • Operating income ($mil) 12/2010= 11.1

  • Operating income ($mil) 12/2009= 8.2

  • Cash And Cash Equivalents ($mil) 12/2011= 14.8

  • Cash And Cash Equivalents ($mil) 12/2010= 76.9

  • Cash And Cash Equivalents ($mil) 12/2009= 9.8

  • Quarterly Net Income this Quarterly/ same Quarter year ago = -77.01

  • Net Income Reported Quarterly ($mil) = 1

  • Annual Net Income this Yr/ Net Income last Yr = 5.93

  • Sales ($mil) 12/2011 = 24

  • Sales ($mil) 12/2010 = 18

  • Annual EPS before NRI 12/2011 = 1.38

  • Quarterly revenue growth= 24.7%

Dividend history

  • Dividend Yield = 10.68

  • Annual Dividend 12/2011 = 0.45

  • Annual Dividend 12/2010 = 0.22

  • Forward Yield = 10.68

  • Payout Ratio 06/2011 = 1.3

Performance

  • Percentage Change Price 52 Weeks Relative to S&P 500 = -5.54

  • Next 3-5 Year Estimate EPS Growth rate = 5

  • EPS Growth Quarterly (1)/Q(-3) = 1-144.44

  • Return on Investment 06/2011 = 4.9

  • Current Ratio 12/2011 = 0.3

  • Quick Ratio = 0.3

  • Interest Coverage Quarterly = 5.15

Valuation

  • Book Value Quarterly = 17.39

  • Price/ Book = 0.97

  • Price/ Sales = 5.35

Notes

Another play that would be rated as "good" but one that should only be considered by individuals willing to take on extra risk.

EPS, EPS surprise, broker recommendations, and price and consensus charts sourced from zacks.com. Earning's estimates and growth rate charts sourced from dailyfinance.com. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.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