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"If the wind will not serve, take the oars."

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Albemarle Corp. (NYSE:ALB) develops manufactures and markets engineered specialty chemicals internationally and locally. It has a fairly high beta of 2.01, which makes it a good candidate for covered writes. We like it also because net income has been increasing for the past three years. It has a very low payout ratio of 14%, a great five-year dividend growth rate of 13.65% and decent levered free cash flow of $241 million. Additionally, its gross margins are higher than the industry average. TTM operating margins for ALB are 20.6% vs. the industry average of 17.4%.

We are bullish on Albemarle Corp. for the following reasons:

  • Consecutive dividend increases for 17 years.
  • Net income has more than doubled from $178 million in 2009 to $436 million in 2011.
  • EBITDA has increased from $285 million in 2009 to $685 million in 2011.
  • Cash flow per share has more than doubled from $2.96 per share in 2009 to $6.01 per share in 2011.
  • Annual EPS before NRI has increased from 2.40 in 2007 to $4.77 in 2011.
  • It sports a good ROE of 25%.
  • It has a decent quarterly revenue growth rate of 16.9%.
  • It sports a very good current and quick ratio of 3.38 and 2.3 respectively.
  • An excellent interest coverage ratio of 15.
  • A great 3 year total return of 224%.
  • Total cash flow from operating activities has increased from $358.3 million in 2009 to $487 million in 2011.
  • A good earnings growth rate of 17%.
  • It sports a fairly high beta so it's a good candidate for covered writes. Selling covered calls can open up a second stream of income.
  • $100K invested for 10 years would have grown to 463K.

As many key ratios are covered 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.

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.

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 payout ratio over 100% indicates that the company is paying out more money to shareholders than 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 Covered Call Plays: 2 Great, 1 Good And 2 To Avoid.

"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 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 the 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 one 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.

"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 - 5 Growth Plays; 4 Impressive And 1 Middle Of The Road.

Albemarle Corp.

Industry: Specialty Chemicals

Levered Free Cash Flow: 241.08M

Beta= 2.01

Growth

  1. Net income for the past three years
  2. Net Income 2009 = $178 million
  3. Net Income 2010 = $324 million
  4. Net Income 2011 = $436 million
  1. EBITDA 12/2011 = $685 million
  2. EBITDA 12/2010 = $513 million
  3. EBITDA 12/2009 = $285 million
  4. Net income Reported Quarterly = $8 million
  1. Total cash flow from operating activities
  2. 2009 = $358.53 million
  3. 2010 = $331.31 million
  4. 2011 = $487.36 million
  1. Cash Flow 12/2011 = 6.01 $/share
  2. Cash Flow 12/2010 = 4.63 $/share
  3. Cash Flow 12/2009 = 2.96 $/share
  1. Annual EPS before NRI 12/2011 = 4.77
  2. Annual EPS before NRI 12/2010 = 3.56
  3. Annual EPS before NRI 12/2009 = 1.86
  4. Annual EPS before NRI 12/2008 = 2.39
  5. Annual EPS before NRI 12/2007 = 2.4

Performance

  1. ROE = 25.61%
  2. Return on Assets = 13.52%
  3. Quarterly Earnings Growth = 17%
  4. Quarterly Revenue Growth = 16.9%
  5. Total return last 3 years = 224.88%
  6. Total return last 5 years = 61.47%
  1. Price to Sales = 1.94
  2. Price to Book = 3.31
  3. Price to Tangible Book = 4.69
  4. Price to Cash Flow = 10.44
  5. Price to Free Cash Flow = 24.7
  1. Current Ratio 09/2011 = 3.38
  2. Current Ratio 5 Year Average = 3.11
  3. Quick Ratio = 2.3
  4. Cash Ratio = 1.33
  5. Interest Coverage 09/2011 = 15.1

Dividend sustainability and history

  1. Payout Ratio 09/2011 = 0.15
  2. Payout Ratio 06/2011 = 0.14
  3. Payout Ratio 5 Year Average 09/2011 = 0.2
  4. Payout Ratio 5 Year Average 06/2011 = 0.2
  5. Change in Payout Ratio = -0.05
  6. Dividend yield 5 year average = 1.4%
  7. Dividend growth rate 3 year Average = 13.43%
  8. Dividend growth rate 5 year average = 14.03%
  9. Consecutive dividend increases = 17 years
  10. Paying dividends since = 1994

Notes

It falls under the category of "great."

AFLAC Inc. (AFL)

Industry: Life and Health

Levered Free Cash Flow: 2.47B

Beta=2.19

Growth

  1. Net income for the past three years
  2. Net Income 2009 = $1497 million
  3. Net Income 2010 = $2344 million
  4. Net Income 2011 = $1964 million
  1. EBITDA 12/2011 = $3188 million
  2. EBITDA 12/2010 = $3734 million
  3. EBITDA 12/2009 = $2307 million
  4. Net income Reported Quarterly = $8 million
  1. Total cash flow from operating activities
  2. 2009 = $6.17 billion
  3. 2010 = $6.99 billion
  4. 2011 = $10.85 billion
  1. Cash Flow 12/2011 = 6.37 $/share
  2. Cash Flow 12/2010 = 5.55 $/share
  3. Cash Flow 12/2009 = 4.87 $/share
  1. Annual EPS before NRI 12/2011 = 6.33
  2. Annual EPS before NRI 12/2010 = 5.53
  3. Annual EPS before NRI 12/2009 = 4.85
  4. Annual EPS before NRI 12/2008 = 3.99
  5. Annual EPS before NRI 12/2007 = 3.27

Performance

  1. ROE = 24.16%
  2. Return on Assets = 2.71%
  3. Quarterly Earnings Growth = 24.9%
  4. Quarterly Revenue Growth = 12.4%
  1. Key Ratios
  2. Price to Sales = 0.96
  3. Price to Book = 1.58
  4. Price to Tangible Book = 1.58
  5. Price to Cash Flow = 7.18
  6. Price to Free Cash Flow = 2.1
  1. Current Ratio 09/2011 = 0.04
  2. Current Ratio 5 Year Average = 0.17
  3. Quick Ratio = 0.04
  4. Cash Ratio = 0.02
  5. Interest Coverage 09/2011 = 16.74
  6. Total return last 3 years = 167.36%
  7. Total return last 5 years = 7%

Dividend history and sustainability

  1. Payout Ratio 09/2011 = 0.21
  2. Payout Ratio 06/2011 = 0.19
  3. Payout Ratio 5 Year Average 09/2011 = 0.24
  4. Payout Ratio 5 Year Average 06/2011 = 0.24
  5. Change in Payout Ratio = -0.03
  1. Dividend yield 5 year average = 2.8%
  2. Dividend growth rate 3 year Average = 8.06%
  3. Dividend growth rate 5 year average = 16.49%
  4. Consecutive dividend increases = 29 years
  5. Paying dividends since = 1973

Notes

It falls under the category of "great." Net income, EBITDA and cash flow per share have generally been trending up for the past few years. It also sports an excellent interest coverage ratio of 16.7 and strong five-year dividend growth rate of 16%.

Company: American Water Work (AWK)

Levered Free Cash Flow = -102.31M

Basic Key ratios

  1. Percentage Held by Insiders = 0.06
  2. Market Cap ($mil) = 5885

Growth

  1. Net Income ($mil) 12/2011 = 310
  2. Net Income ($mil) 12/2010 = 268
  3. Net Income ($mil) 12/2009 = -233
  4. 12months Net Income this Quarterly/ 12months Net Income 4Q's ago = 24.77
  5. Quarterly Net Income this Quarterly/ same Quarter year ago = 61.5
  1. EBITDA ($mil) 12/2011 = 1166
  2. EBITDA ($mil) 12/2010 = 1072
  3. EBITDA ($mil) 12/2009 = 499
  4. Net Income Reported Quarterlytr ($mil) = 65
  5. Annual Net Income this Yr/ Net Income last Yr = 15.6
  6. Cash Flow ($/share) 12/2011 = 3.75
  7. Cash Flow ($/share) 12/2010 = 3.41
  8. Cash Flow ($/share) 12/2009 = 2.97
  1. Sales ($mil) 12/2011 = 2666
  2. Sales ($mil) 12/2010 = 2711
  3. Sales ($mil) 12/2009 = 2441
  1. Annual EPS before NRI 12/2008 = 1.1
  2. Annual EPS before NRI 12/2009 = 1.25
  3. Annual EPS before NRI 12/2010 = 1.53
  4. Annual EPS before NRI 12/2011 = 1.75

Dividend history

  1. Dividend Yield = 2.70
  2. Annual Dividend 12/2011 = 0.9
  3. Annual Dividend 12/2010 = 0.86
  4. Forward Yield = 2.75
  5. Dividend 3 year Growth = 15.92%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.53
  2. Payout Ratio 5 Year Average 06/2011 = 0.61
  3. Change in Payout Ratio = -0.09

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 13.73
  2. Next 3-5 Year Estimate EPS Growth rate = 8.12
  3. EPS Growth Quarterly(1)/Q(-3) = -147.83
  4. ROE 5 Year Average 06/2011 = 5.96
  5. Return on Investment 06/2011 = 3.22
  6. Debt/Total Cap 5 Year Average 06/2011 = 55.76
  7. Current Ratio 06/2011 = 0.94
  8. Current Ratio 5 Year Average = 0.79
  9. Quick Ratio = 0.92
  10. Cash Ratio = 0.78
  11. Interest Coverage Quarterly = 2.28

Valuation

  1. Book Value Quarterly = 24.13
  2. Price/ Book = 1.39
  3. Price/ Cash Flow = 8.92
  4. Price/ Sales = 2.19
  5. EV/EBITDA 12 Mo = 9.6

Notes

It would fall under the category of "good-great." Net income, cash flow per share, EBITDA has all been rising for the past three years. EPS is projected to continue trending upward for the next few years. As a utility it is guaranteed to generate a stream of recurring income and this is good for long-term players who are looking for a stable stock. Finally it sports a strong five-year dividend growth rate of 15.92%.

Hormel Foods Corp. (HRL)

Industry: Food

Levered Free Cash Flow: 393.43M

Growth

  1. Net income for the past three years
  2. Net Income 2009 = $343 million
  3. Net Income 2010 = $396 million
  4. Net Income 2011 = $474 million
  1. EBITDA 12/2011 = $866 million
  2. EBITDA 12/2010 = $777 million
  3. EBITDA 12/2009 = $683 million
  4. Net income Reported Quarterly = $371 million
  1. Total cash flow from operating activities
  2. 2009 = $558.77 million
  3. 2010 = $485.54 million
  4. 2011 = $490.48 million
  1. Cash Flow 12/2011 = 2.26 $/share
  2. Cash Flow 12/2010 = 2.01 $/share
  3. Cash Flow 12/2009 = 1.75 $/share
  1. Annual EPS before NRI 12/2011 = 1.74
  2. Annual EPS before NRI 12/2010 = 1.51
  3. Annual EPS before NRI 12/2009 = 1.27
  4. Annual EPS before NRI 12/2008 = 1.04
  5. Annual EPS before NRI 12/2007 = 1.07

Performance

  1. ROE = 16.95%
  2. Return on Assets = 10.61%
  3. Quarterly Earnings Growth = -13.7%
  4. Quarterly Revenue Growth = 6.1%
  5. Total return last 3 years = 105.32%
  6. Total return last 5 years = 65.98%
  1. Price to Sales = 0.95
  2. Price to Book = 2.77
  3. Price to Tangible Book = 3.83
  4. Price to Cash Flow = 12.72
  5. Price to Free Cash Flow = 34
  1. Current Ratio 03/2012 = 2.79
  2. Current Ratio 12/2011 = 2.79
  3. Current Ratio 09/2011 = 2.57
  4. Current Ratio 5 Year Average = 2.21
  5. Quick Ratio = 1.43
  6. Cash Ratio = 0.81
  7. Interest Coverage 03/2012 = 61.53
  8. Interest Coverage 12/2011 = 61.53
  9. Interest Coverage 09/2011 = 55.82

Dividend sustainability

  1. Payout Ratio 12/2011 = 0.36
  2. Payout Ratio 09/2011 = 0.29
  3. Payout Ratio 06/2011 = 0.29
  4. Payout Ratio 5 Year Average 12/2011 = 0.31
  5. Change in Payout Ratio = 0.05

Dividend history

  1. Dividend yield 5 year average = 1.9%
  2. Dividend growth rate 3 year average = 12.83%
  3. Dividend growth rate 5 year average = 13.44%
  4. Consecutive dividend increases = 45 years
  5. Paying dividends since = 1928
  6. Total return last 3 years = 97.21%
  7. Total return last 5 years = 67.1%

Notes

It would fall under the category of great. Low payout ratio, strong five-year dividend growth rate, incredibly strong interest coverage, and a good current ratio all indicate that this company is healthy. Net income, cash flow per share and EBITDA are all trending upwards. EPS is projected to continue rising over the next few years.

Company: Pitney Bowes (PBI)

Levered Free Cash Flow = 692.81M

Basic Key ratios

Percentage Held by Insiders = 2.13

Market Cap ($mil) = 3706

Growth

Net Income ($mil) 12/2011 = 617

Net Income ($mil) 12/2010 = 292

Net Income ($mil) 12/2009 = 423

12months Net Income this Quarterly/ 12months Net Income 4Q's ago = 114.33

Quarterly Net Income this Quarterly/ same Quarter year ago = 315.82

EBITDA ($mil) 12/2011 = 817

EBITDA ($mil) 12/2010 = 838

EBITDA ($mil) 12/2009 = 1032

Net Income Reported Quarterlytr ($mil) = 262

Annual Net Income this Yr/ Net Income last Yr = 111.2

Cash Flow ($/sh) 12/2011 = 4.31

Cash Flow ($/sh) 12/2010 = 3.76

Cash Flow ($/sh) 12/2009 = 3.92

Sales ($mil) 12/2011 = 5278

Sales ($mil) 12/2010 = 5425

Sales ($mil) 12/2009 = 5569

Annual EPS before NRI 12/2007 = 2.71

Annual EPS before NRI 12/2008 = 2.78

Annual EPS before NRI 12/2009 = 2.28

Annual EPS before NRI 12/2010 = 2.23

Annual EPS before NRI 12/2011 = 2.26

Dividend history

Dividend Yield = 8.2

Dividend Yield 5 Year Average =5.9%

Forward Yield = 8.09

Dividend 5 year Growth = 2.8%

Dividend sustainability

Payout Ratio 06/2011 = 0.63

Payout Ratio 5 Year Average 06/2011 = 0.57

Change in Payout Ratio = 0.06

Performance

Percentage Change Price 52 Weeks Relative to S&P 500 = -29.32

EPS Growth Quarterly (1)/Q(-3) = 107.58

ROE 5 Year Average 06/2011 = 674.81

Return on Investment 06/2011 = 11.1

Current Ratio 06/2011 = 1.05

Current Ratio 5 Year Average = 1.09

Quick Ratio = 1

Cash Ratio = 0.36

Interest Coverage Quarterly = 4.45

Valuation

Book Value Quarterly = -0.2

Price/ Cash Flow = 4.3

Price/ Sales = 0.7

EV/EBITDA 12 Mo = 7.99

Notes

Sales and EBITDA are below 2009 levels and Annual EPS before NRI is below 2007 levels. However, net income and cash flow have been generally trending upwards for the past three years and it sports a stellar record for consecutively increasing its dividend for 30 years in a row. As a result of this it would fall under the category of "good."

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.

Source: Albemarle Corp. And Other Growth Candidates To Consider

Additional disclosure: EPS, EPS surprise, broker recommendations, and price and consensus charts sourced from zacks.com. Earnings estimates and growth rate charts sourced from dailyfinance.com. Total cash flow from operating activities table sourced from yahoofinance.