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"Knowing others is intelligence; knowing yourself is true wisdom. Mastering others is strength; mastering yourself is true power. If you realize that you have enough, you are truly rich."

Tao Ching

Even though the correction of the past few days appears to be strong, the markets are still overbought and need to let out some steam. Prudent investors would do well to wait for a strong pullback before committing funds to this market. A pullback in the 7-12% ranges would qualify as a strong pullback. If you feel that you have to play the markets, then consider selling naked puts on stocks that you are bullish on. If the stock trades below the strike price you will be assigned the shares at a price of your choice. If it does not trade below the strike, you get to keep the premium.

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

  • A good yield of 8.7%.
  • A five-year dividend average of 6.5%.
  • A positive levered free cash flow of $78.4 million.
  • A good five year sales growth rate of 14.85%.
  • Growth rates are improving. In 2010 it stood at -42.3%, in 2012 its projected to come in at -32.4% and in 2013 it's expected to surge to 22.8%.
  • 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 it net income was $52 million.
  • Total liabilities have dropped from $617 million in 2009 to $516 million in 2011.
  • It has a very strong free cash flow yield of 20.93%.
  • A good long-term debt to equity ratio of 0.54.
  • EPS is projected to remain unchanged for 2012 but it 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 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%.
  • The percentage short of float is 8%, which makes it a pretty good candidate for a short squeeze.
  • It has a good five year sales growth rate of 14.85%.
  • A decent long-term debt to equity ratio of 0.54.
  • A high beta of 1.74 which makes it a good candidate for covered writes. Selling covered calls opens up a second stream of income.
  • $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.

Many key ratios will be covered in this article and investors would do well to get a handle on some of the more important ones which are dealt with below.

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 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 Interesting REITs: American Capital Agency Our Top pick.

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 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 cash 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 - TransCanada Among Our 5 Interesting Candidates.

Company: United Online Inc

Levered Free Cash Flow = 78.46M

Basic Key Ratios

  1. Percentage Held by Insiders = 5.3
  2. Number of Institutional Sellers 12 Weeks = 4

Growth

  1. Net Income ($mil) 12/2011 = 52
  2. Net Income ($mil) 12/2010 = 54
  3. Net Income ($mil) 12/2009 = 70
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -1.49
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -19.46
  1. EBITDA ($mil) 12/2011 = 157
  2. EBITDA ($mil) 12/2010 = 178
  3. EBITDA ($mil) 12/2009 = 218
  4. Net Income Reported Quarterly ($mil) = 12
  5. Annual Net Income this Yr/ Net Income last Yr = -3.63
  6. Cash Flow ($/share) 12/2011 = 1.5
  7. Cash Flow ($/share) 12/2010 = 1.54
  8. Cash Flow ($/share) 12/2009 = 1.92
  1. Sales ($mil) 12/2011 = 898
  2. Sales ($mil) 12/2010 = 921
  3. Sales ($mil) 12/2009 = 990
  1. Annual EPS before NRI 12/2008 = 0.85
  2. Annual EPS before NRI 12/2009 = 1.14
  3. Annual EPS before NRI 12/2010 = 0.79
  4. Annual EPS before NRI 12/2011 = 0.84

.

Dividend history

  1. Dividend Yield = 8.26
  2. Dividend Yield 5 Year Average = 6.5%
  3. Annual Dividend 12/2011 = 0.4
  4. Annual Dividend 12/2010 = 0.4
  5. Forward Yield = 8.26
  6. Dividend 5 year Growth 12/2011 = -16%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.47
  2. Payout Ratio 5 Year Average 06/2011 = 0.59
  3. Change in Payout Ratio = -0.12

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -27
  2. Next 3-5 Year Estimate EPS Growth rate = 15
  3. EPS Growth Quarterly(1)/Q(-3) = 108.7
  4. ROE 5 Year Average 06/2011 = 18.14
  5. Return on Investment 06/2011 = 10.48
  6. Debt/Total Cap 5 Year Average 06/2011 = 28.83
  1. Current Ratio 06/2011 = 1.16
  2. Current Ratio 5 Year Average = 1.18
  3. Quick Ratio = 1.16
  4. Cash Ratio = 0.94
  5. Interest Coverage = 6.96

Valuation

  1. Book Value Quarterly = 5.39
  2. Price/ Book = 0.9
  3. Price/ Cash Flow = 3.23
  4. Price/ Sales = 0.49
  5. EV/EBITDA 12 Mo = 3.55

Company: Visa (V)

Levered Free Cash Flow = 1.71B

Basic Key ratios

  1. Percentage Held by Insiders = 0.04
  2. Number of Institutional Sellers 12 Weeks = 1

Growth

  1. Net Income ($mil) 12/2011 = 3650
  2. Net Income ($mil) 12/2010 = 2966
  3. Net Income ($mil) 12/2009 = 2353
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 22.94
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 16.4
  1. EBITDA ($mil) 12/2011 = 7856
  2. EBITDA ($mil) 12/2010 = 6535
  3. EBITDA ($mil) 12/2009 = 5575
  4. Net Income Reported Quarterly ($mil) = 1029
  5. Annual Net Income this Yr/ Net Income last Yr = 23.06
  6. Cash Flow ($/share) 12/2011 = 6.97
  7. Cash Flow ($/share 12/2010 = 5.65
  8. Cash Flow ($/share) 12/2009 = 4.34
  1. Sales ($mil) 12/2011 = 9188
  2. Sales ($mil) 12/2010 = 8065
  3. Sales ($mil) 12/2009 = 6911
  1. Annual EPS before NRI 12/2008 = 2.25
  2. Annual EPS before NRI 12/2009 = 2.92
  3. Annual EPS before NRI 12/2010 = 3.91
  4. Annual EPS before NRI 12/2011 = 4.99

Dividend history

  1. Dividend Yield = 0.8
  2. Annual Dividend 12/2011 = 0.6
  3. Forward Yield = 0.70
  4. Dividend 3 year Growth =30%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.17
  2. Payout Ratio 5 Year Average 06/2011 = 0.15
  3. Change in Payout Ratio = 0.02

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 53.74
  2. Next 3-5 Year Estimate EPS Growth rate = 16.43
  3. EPS Growth Quarterly(1)/Q(-3) = -121.14
  4. ROE 5 Year Average 06/2011 = 11.12
  5. Return on Investment 06/2011 = 13.86
  6. Debt/Total Cap 5 Year Average 06/2011 = 0.47
  1. Current Ratio 06/2011 = 2.82
  2. Current Ratio 5 Year Average = 2.15
  3. Quick Ratio = 2.66
  4. Cash Ratio = 2.38
  5. Interest Coverage Quarterly = 162.7

Valuation

  1. Book Value Quarterly = 33.58
  2. Price/ Book = 3.49
  3. Price/ Cash Flow = 16.81
  4. Price/ Sales = 10.03
  5. EV/EBITDA 12 Mo = 11.22

Notes

This is another great long term play.

Company: Apollo Investment Corporation (AINV)

Basic Key ratios

Percentage Held by Insiders = 0.14

Growth

  1. Net Income ($mil) 12/2011 = 180
  2. Net Income ($mil) 12/2010 = 263
  3. Net Income ($mil) 12/2009 = N/A
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -126.47
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -24.62
  1. EBITDA ($mil) 12/2011 = 46
  2. EBITDA ($mil) 12/2010 = -275
  3. EBITDA ($mil) 12/2009 = N/A
  4. Net Income Reported Quarterlytr ($mil) = 64
  5. Annual Net Income this Yr/ Net Income last Yr = -31.48
  6. Cash Flow ($/share) 12/2011 = 0.04
  7. Cash Flow ($/share) 12/2010 = -2.06
  8. Cash Flow ($/share) 12/2009 = N/A
  1. Sales ($mil) 12/2011 = 359
  2. Sales ($mil) 12/2010 = 340
  3. Sales ($mil) 12/2009 = N/A
  1. Annual EPS before NRI 12/2007 = N/A
  2. Annual EPS before NRI 12/2008 = 1.88
  3. Annual EPS before NRI 12/2009 = 1.48
  4. Annual EPS before NRI 12/2010 = 1.25
  5. Annual EPS before NRI 12/2011 = 0.99

Dividend history

  1. Dividend Yield = 10.99
  2. Dividend Yield 5 Year Average 12/2011 = 13.65
  3. Dividend Yield 5 Year Average 09/2011 = 13.65
  4. Annual Dividend 12/2011 = 1.12
  5. Forward Yield = 10.99
  6. Dividend 5 year Growth 12/2011 = -16.95

Dividend sustainability

  1. Payout Ratio 06/2011 = 1.23
  2. Payout Ratio 5 Year Average 12/2011 = 1.08
  3. Payout Ratio 5 Year Average 09/2011 = 1.08
  4. Payout Ratio 5 Year Average 06/2011 = 1.09
  5. Change in Payout Ratio = 0.16

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -40.83
  2. Next 3-5 Year Estimate EPS Growth rate = 5
  3. EPS Growth Quarterly(1)/Q(-3) = 124
  4. ROE 5 Year Average 12/2011 = 10.72
  5. ROE 5 Year Average 09/2011 = 10.72
  6. ROE 5 Year Average 06/2011 = 10.62
  7. Return on Investment 06/2011 = 6.16
  8. Debt/Total Cap 5 Year Average 12/2011 = 28.99
  9. Debt/Total Cap 5 Year Average 09/2011 = 28.99
  10. Debt/Total Cap 5 Year Average 06/2011 = 27.54
  1. Current Ratio 06/2011 = 1.37
  2. Current Ratio 5 Year Average = 1.21
  3. Quick Ratio = 0.75
  4. Cash Ratio = 0.25
  5. Interest Coverage Quarterly = 4.76

Valuation

  1. Book Value Quarterly = 8.16
  2. Price/ Book = 0.89
  3. Price/ Cash Flow = 167.8
  4. Price/ Sales = 3.91
  5. EV/EBITDA 12 Mo = 57.89

Company: Prospect Capital Corporation (PSEC)

Basic Key Ratios

Percentage Held by Insiders = 2.3

Growth

  1. Net Income ($mil) 12/2011 = 118
  2. Net Income ($mil) 12/2010 = 20
  3. Net Income ($mil) 12/2009 = 35
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 77.28
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 101.92
  1. EBITDA ($mil) 12/2011 = 118
  2. EBITDA ($mil) 12/2010 = 13
  3. EBITDA ($mil) 12/2009 = 40
  4. Net Income Reported Quarterlytr ($mil) = 64
  5. Annual Net Income this Yr/ Net Income last Yr = 502.6
  6. Cash Flow ($/share) 12/2011 = 0.71
  7. Cash Flow ($/share) 12/2010 = 0.77
  8. Cash Flow ($/share) 12/2009 = 1.37
  1. Sales ($mil) 12/2011 = 169
  2. Sales ($mil) 12/2010 = 114
  3. Sales ($mil) 12/2009 = 100
  1. Annual EPS before NRI 12/2007 = 1.06
  2. Annual EPS before NRI 12/2008 = 1.91
  3. Annual EPS before NRI 12/2009 = 1.87
  4. Annual EPS before NRI 12/2010 = 1.12
  5. Annual EPS before NRI 12/2011 = 1.1
  1. Dividend history =
  1. Dividend Yield = 11.2
  2. Dividend Yield 5 Year Average 12/2011 = 12.51
  3. Dividend Yield 5 Year Average 09/2011 = 12.51
  4. Annual Dividend 12/2011 = 1.21
  5. Annual Dividend 12/2010 = 2.14
  6. Forward Yield = 11.21
  7. Dividend 5 year Growth 12/2011 = -8.95

Dividend sustainability

  1. Payout Ratio 06/2011 = 1.04
  2. Payout Ratio 5 Year Average 12/2011 = 1.05
  3. Payout Ratio 5 Year Average 09/2011 = 1.05
  4. Payout Ratio 5 Year Average 06/2011 = 1.05
  5. Change in Payout Ratio = -0.01

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -9.98
  2. EPS Growth Quarterly(1)/Q(-3) = -122.22
  3. ROE 5 Year Average 12/2011 = 10.81
  4. ROE 5 Year Average 09/2011 = 10.81
  5. ROE 5 Year Average 06/2011 = 10.67
  6. Return on Investment 06/2011 = 8.42
  7. Debt/Total Cap 5 Year Average 12/2011 = 5.6
  8. Debt/Total Cap 5 Year Average 09/2011 = 5.6
  9. Debt/Total Cap 5 Year Average 06/2011 = 5.32
  1. Current Ratio 06/2011 = 0.08
  2. Current Ratio 5 Year Average = 0.75
  3. Quick Ratio = 0.1
  4. Cash Ratio = 0.02
  5. Interest Coverage Quarterly = 7.61

Valuation

  1. Book Value Quarterly = 10.71
  2. Price/ Book = 1.02
  3. Price/ Cash Flow = 15.27
  4. Price/ Sales = 5.92
  5. EV/EBITDA 12 Mo = 13.92

Hormel Foods Corp. (HRL)

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

Dividend sustainability

  1. Payout Ratio 12/2011 = 0.36
  2. Payout Ratio 5 Year Average 12/2011 = 0.31
  3. 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

Notes

This is another great long term play.

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.

Source: United Online A Top Choice Among 5 Dividend Plays

Additional disclosure: EPS, Price, EPS surprise charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Earnings estimates and growth rate charts sourced from dailyfinance.com.