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"Endurance is one of the most difficult disciplines, but it is to the one who endures that the final victory comes."

Buddha

Instead of just screening for yield we manually screened for additional factors. The candidates had to (generally) meet the following criteria. A stock could miss one of the requirements and still be included if the long-term outlook was bright, and it generally fulfilled the other criteria.

  1. In general net income should be trending upwards for the past three years.
  2. Cash flow per share should be increasing for the past three years.
  3. EPS had to be trending upwards for the past five years.
  4. Sales should be trending upwards for the past three years.
  5. In general the payout ratio should be below 100% (except in the case of MLPs and REITs).
  6. Interest coverage ratio of above 4 .5.
  7. A positive levered free cash flow, should be viewed as "icing on the cake."

Reasons to consider Pfizer Inc (NYSE:PFE):

  • A very strong levered free cash flow of $20.9 billion.
  • Net income increased from $8.6 billion in 2009 to $10.9 billion in 2011.
  • Cash flow per share increased from $2.35 in 2009 to $3.54 in 2011.
  • EBITDA increased from $15.4 billion in 2009 to $21.4 billion in 2011.
  • Sales increased from $50 billion in 2009 to $67 billion in 2011.
  • It has a decent yield of 4%.
  • A five-year dividend average of 4.7%.
  • A manageable payout ratio of 35%.
  • A good five-year payout average ratio of 43%.
  • A good quick and current ratio of 2.06 and 1.78, respectively.
  • A five-year sales growth rate of 8%.
  • A good interest coverage ratio of 8.6.
  • A great long-term debt to equity ratio of 0.43.
  • A great three year total return of 78%.
  • A strong free cash flow yield of 10.99%.

Numerous key ratios will be covered in this article and investors would do well to get a grip 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 of Annaly Vs. Dynex: Who Is The Champ?

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 expenditures, then its free cash flow is $300 million. If the share price is $100 and the free cash flow per share is $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.

Levered free cash flow is the amount of cash available to stock holders after interest payments on debt are made. A company with a small amount of debt will only have to spend a modest amount of money on interest payments, which in turn means that there is more money to send to shareholders in the form of dividends and vice versa.

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 - Dividend Plays: Kimberly-Clark Our Top Pick.

Company: Pfizer Inc

Levered Free Cash Flow = $20.90B

Basic Key ratios

Percentage Held by Insiders = 0.05

Number of Institutional Sellers 12 Weeks = 3

Growth

  1. Net Income ($mil) 12/2011 = 10009
  2. Net Income ($mil) 12/2010 = 8257
  3. Net Income ($mil) 12/2009 = 8635
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 21.22
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -50.21
  1. EBITDA ($mil) 12/2011 = 21788
  2. EBITDA ($mil) 12/2010 = 17769
  3. EBITDA ($mil) 12/2009 = 15431
  4. Net Income Reported Quarterlytr ($mil) = 1439
  5. Annual Net Income this Yr/ Net Income last Yr = 21.22
  6. Cash Flow ($/share) 12/2011 = 3.54
  7. Cash Flow ($/share) 12/2010 = 3.31
  8. Cash Flow ($/share) 12/2009 = 2.35
  1. Sales ($mil) 12/2011 = 67425
  2. Sales ($mil) 12/2010 = 67809
  3. Sales ($mil) 12/2009 = 50009
  1. Annual EPS before NRI 12/2007 = 2.2
  2. Annual EPS before NRI 12/2008 = 2.42
  3. Annual EPS before NRI 12/2009 = 2.02
  4. Annual EPS before NRI 12/2010 = 2.23
  5. Annual EPS before NRI 12/2011 = 2.31

Dividend history

  1. Dividend Yield = 4.00
  2. Dividend Yield 5 Year Average = 4.7%
  3. Annual Dividend 12/2011 = 0.8
  4. Annual Dividend 12/2010 = 0.72
  5. Forward Yield = 3.93
  6. Dividend 5 year Growth = -7.7%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.35
  2. Payout Ratio 5 Year Average 06/2011 = 0.43
  3. Change in Payout Ratio = -0.09

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 4.13
  2. Next 3-5 Year Estimate EPS Growth rate = 3.76
  3. EPS Growth Quarterly(1)/Q(-3) = -106.38
  4. ROE 5 Year Average 06/2011 = 21.81
  5. Return on Investment 06/2011 = 14.74
  6. Debt/Total Cap 5 Year Average 06/2011 = 21.78
  1. Current Ratio 06/2011 = 2.06
  2. Current Ratio 5 Year Average = 2.29
  3. Quick Ratio = 1.78
  4. Cash Ratio = 1.3
  5. Interest Coverage = 8.6

Valuation

  1. Book Value Quarterly = 10.74
  2. Price/ Book = 2.00
  3. Price/ Cash Flow = 8.60
  4. Price/ Sales = 2.44
  5. EV/EBITDA 12 Mo = 8.13

Company: Johnson & Johnson (JNJ)

Levered Free Cash Flow = 8.19B

Basic Key ratios

  1. Percentage Held by Insiders = 0.03
  2. Number of Institutional Sellers 12 Weeks = 1

Growth

  1. Net Income ($mil) 12/2011 = 9672
  2. Net Income ($mil) 12/2010 = 13334
  3. Net Income ($mil) 12/2009 = 12266
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -27.46
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -88.77
  1. EBITDA ($mil) 12/2011 = 16090
  2. EBITDA ($mil) 12/2010 = 20341
  3. EBITDA ($mil) 12/2009 = 18980
  4. Net Income Reported Quarterlytr ($mil) = 218
  5. Annual Net Income this Yr/ Net Income last Yr = -27.46
  6. Cash Flow ($/share) 12/2011 = 6.23
  7. Cash Flow ($/share) 12/2010 = 5.91
  8. Cash Flow ($/share) 12/2009 = 5.68
  1. Sales ($mil) 12/2011 = 65030
  2. Sales ($mil) 12/2010 = 61587
  3. Sales ($mil) 12/2009 = 61897
  1. Annual EPS before NRI 12/2007 = 4.15
  2. Annual EPS before NRI 12/2008 = 4.55
  3. Annual EPS before NRI 12/2009 = 4.63
  4. Annual EPS before NRI 12/2010 = 4.76
  5. Annual EPS before NRI 12/2011 = 5

Dividend history

  1. Dividend Yield = 3.60
  2. Dividend Yield 5 Year Average =3.10
  3. Annual Dividend 12/2011 = 2.25
  4. Annual Dividend 12/2010 = 2.11
  5. Forward Yield = 3.48
  6. Dividend 5 year Growth =9.00%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.46
  2. Payout Ratio 5 Year Average 06/2011 = 0.43
  3. Change in Payout Ratio = 0.03

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 4.43
  2. Next 3-5 Year Estimate EPS Growth rate = 5.86
  3. EPS Growth Quarterly(1)/Q(-3) = -109.71
  4. ROE 5 Year Average 06/2011 = 26.6
  5. Return on Investment 06/2011 = 19.16
  6. Debt/Total Cap 5 Year Average 06/2011 = 13.69
  1. Current Ratio 06/2011 = 2.38
  2. Current Ratio 5 Year Average = 1.87
  3. Quick Ratio = 2.11
  4. Cash Ratio = 1.64
  5. Interest Coverage =22.20

Valuation

  1. Book Value Quarterly = 20.9
  2. Price/ Book = 3.06
  3. Price/ Cash Flow = 13.60
  4. Price/ Sales = 2.68
  5. EV/EBITDA 12 Mo = 10

Company: Enterprise Product Partners (NYSE:EPD)

Levered Free Cash Flow = -898.45M

Basic Key ratios

Percentage Held by Insiders = 34.7

Number of Institutional Sellers 12 Weeks = 1

Growth

  1. Net Income ($mil) 12/2011 = 2047
  2. Net Income ($mil) 12/2010 = 321
  3. Net Income ($mil) 12/2009 = 204
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 61.59
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 351.25
  1. EBITDA ($mil) 12/2011 = 3867
  2. EBITDA ($mil) 12/2010 = 3137
  3. EBITDA ($mil) 12/2009 = 2690
  4. Net Income Reported Quarterlytr ($mil) = 721
  5. Annual Net Income this Yr/ Net Income last Yr = 538.08
  6. Cash Flow ($/share) 12/2011 = 3.34
  7. Cash Flow ($/share) 12/2010 = 1.63
  8. Cash Flow ($/share) 12/2009 = 3.15
  1. Sales ($mil) 12/2011 = 44313
  2. Sales ($mil) 12/2010 = 33739
  3. Sales ($mil) 12/2009 = 25511
  1. Annual EPS before NRI 12/2007 = 0.96
  2. Annual EPS before NRI 12/2008 = 1.85
  3. Annual EPS before NRI 12/2009 = 1.81
  4. Annual EPS before NRI 12/2010 = 1.39
  5. Annual EPS before NRI 12/2011 = 2.21

Dividend history

  1. Dividend Yield = 4.9
  2. Dividend Yield 5 Year Average 12/2011 = 6.72
  3. Dividend Yield 5 Year Average 09/2011 = 6.72
  4. Annual Dividend 12/2011 = 2.41
  5. Annual Dividend 12/2010 = 2.29
  6. Forward Yield = 4.84
  7. Dividend 5 year Growth 12/2011 = 5.73

Dividend sustainability

  1. Payout Ratio 06/2011 = 1.11
  2. Payout Ratio 5 Year Average 12/2011 = 1.33
  3. Payout Ratio 5 Year Average 09/2011 = 1.33
  4. Payout Ratio 5 Year Average 06/2011 = 1.35
  5. Change in Payout Ratio = -0.22

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 11.58
  2. Next 3-5 Year Estimate EPS Growth rate = 6.4
  3. EPS Growth Quarterly(1)/Q(-3) = -139.58
  4. ROE 5 Year Average 12/2011 = 12.58
  5. ROE 5 Year Average 09/2011 = 12.58
  6. ROE 5 Year Average 06/2011 = 12.38
  7. Return on Investment 06/2011 = 7.45
  8. Debt/Total Cap 5 Year Average 12/2011 = 54.68
  9. Debt/Total Cap 5 Year Average 09/2011 = 54.68
  10. Debt/Total Cap 5 Year Average 06/2011 = 54.34
  1. Current Ratio 06/2011 = 0.82
  2. Current Ratio 5 Year Average = 0.94
  3. Quick Ratio = 0.67
  4. Cash Ratio = 0.06
  5. Interest Coverage = 4.97

Valuation

  1. Book Value Quarterly = 14.02
  2. Price/ Book = 3.69
  3. Price/ Cash Flow = 15.60
  4. Price/ Sales = 1.01
  5. EV/EBITDA 12 Mo = 15.16

Company: Tripadvisor Inc (NASDAQ:TRIP)

Levered Free Cash Flow = 112.97M

Growth

  1. Net Income ($mil) 12/2011 = 178
  2. Net Income ($mil) 12/2010 = 139
  3. Net Income ($mil) 12/2009 = 102
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 28.03
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 19.49
  1. EBITDA ($mil) 12/2011 = 298
  2. EBITDA ($mil) 12/2010 = 252
  3. EBITDA ($mil) 12/2009 = 190
  4. Net Income Reported Quarterlytr ($mil) = 22
  5. Annual Net Income this Yr/ Net Income last Yr = 28.03
  6. Cash Flow ($/share) 12/2011 = 1.66
  7. Cash Flow ($/share) 12/2010 = 1.25
  8. Cash Flow ($/share) 12/2009 = 0.94
  1. Sales ($mil) 12/2011 = 637
  2. Sales ($mil) 12/2010 = 485
  3. Sales ($mil) 12/2009 = 352
  1. Annual EPS before NRI 12/2009 = 0.77
  2. Annual EPS before NRI 12/2010 = 1.04
  3. Annual EPS before NRI 12/2011 = 1.32

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 13
  2. EPS Growth Quarterly(1)/Q(-3) = 154.29
  3. Return on Investment 06/2011 = 52.76
  4. Current Ratio 06/2011 = 2.14
  5. Quick Ratio = 2.14
  6. Cash Ratio = 1.51
  7. Interest Coverage = N/A

Valuation

  1. Book Value Quarterly = 2.39
  2. Price/ Book = 15.75
  3. Price/ Cash Flow = 22.70
  4. Price/ Sales = 7.25
  5. EV/EBITDA 12 Mo = 15.11

Company: Kinder Morgan Energy (NYSE:KMP)

Levered Free Cash Flow = 383.71M

Basic Key ratios

Percentage Held by Insiders = 20.72

Growth

  1. Net Income ($mil) 12/2011 = 1258
  2. Net Income ($mil) 12/2010 = 1316
  3. Net Income ($mil) 12/2009 = 1268
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -4.64
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 14.98
  1. EBITDA ($mil) 12/2011 = 2809
  2. EBITDA ($mil) 12/2010 = 2780
  3. EBITDA ($mil) 12/2009 = 2628
  4. Net Income Reported Quarterlytr ($mil) = 475
  5. Annual Net Income this Yr/ Net Income last Yr = -4.44
  6. Cash Flow ($/share) 12/2011 = 11.72
  7. Cash Flow ($/share) 12/2010 = 10.34
  8. Cash Flow ($/share) 12/2009 = 10.54
  1. Sales ($mil) 12/2011 = 8211
  2. Sales ($mil) 12/2010 = 8078
  3. Sales ($mil) 12/2009 = 7003
  1. Annual EPS before NRI 12/2007 = 1.74
  2. Annual EPS before NRI 12/2008 = 2.07
  3. Annual EPS before NRI 12/2009 = 1.31
  4. Annual EPS before NRI 12/2010 = 1.47
  5. Annual EPS before NRI 12/2011 = 1.75

Dividend history

  1. Dividend Yield = 5.60
  2. Dividend Yield 5 Year Average 12/2011 = 6.83
  3. Dividend Yield 5 Year Average 09/2011 = 6.83
  4. Annual Dividend 12/2011 = 4.58
  5. Annual Dividend 12/2010 = 4.32
  6. Forward Yield = 5.54
  7. Dividend 5 year Growth 12/2011 = 6.79

Dividend sustainability

  1. Payout Ratio 06/2011 = 2.68
  2. Payout Ratio 5 Year Average 12/2011 = 2.66
  3. Payout Ratio 5 Year Average 09/2011 = 2.66
  4. Payout Ratio 5 Year Average 06/2011 = 2.62
  5. Change in Payout Ratio = 0.03

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 6.67
  2. Next 3-5 Year Estimate EPS Growth rate = 5
  3. EPS Growth Quarterly(1)/Q(-3) = -125
  4. ROE 5 Year Average 12/2011 = 22.27
  5. ROE 5 Year Average 09/2011 = 22.27
  6. ROE 5 Year Average 06/2011 = 22.23
  7. Return on Investment 06/2011 = 9.17
  8. Debt/Total Cap 5 Year Average 12/2011 = 60.91
  9. Debt/Total Cap 5 Year Average 09/2011 = 60.91
  10. Debt/Total Cap 5 Year Average 06/2011 = 60.78
  1. Current Ratio 06/2011 = 0.51
  2. Current Ratio 5 Year Average = 0.55
  3. Quick Ratio = 0.47
  4. Cash Ratio = 0.19
  5. Interest Coverage Quarterly = 5.26

Valuation

  1. Book Value Quarterly = 32.93
  2. Price/ Book = 2.55
  3. Price/ Cash Flow = 8.70
  4. Price/ Sales = 2.33
  5. EV/EBITDA 12 Mo = 11.16

Conclusion

Long-term investors would do well to wait for the market to let out some more steam before committing large amounts of money to this market as they are still rather overbought. A pullback in the 7%-12% from the peak would qualify as a strong pullback. In the meantime, long-term investors can either sell covered calls, or if you are bullish on the stock naked puts to open up additional streams of income.

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: Pfizer Among Our 5 Interesting Candidates

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. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com.