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Investors should never base their decision on yield alone as there are many stocks that offer extremely high yields but with dismal performance. In some cases even with the high yield the total rate of return has been negative for the past 3-5 years. In terms of stocks that pay out dividends one should look at the strength of the company, the dividend growth rate, the sustainability of the dividend and the company's dividend history. Companies with stellar records will go the extra mile to prevent the dividend from being cut.

Exelon Corp. (NYSE:EXC) is play of choice for the following reasons:

A very strong levered free cash flow of $1.3 billion.

A five year dividend average of 4.03%.

A decent yield of 5.6%.

Even though net income has dropped slightly from $2.5 billion in 2010 to $2.49 billion in 2011, it still generates a huge amount cash flow, which is more than enough to cover the dividend payments.

Annual EPS before NRI has increased from $4.12 in 2009 to $4.16 in 2011.

A good ROE of 19.45%.

A good operating margin of 23%.

A 5 year cash flow average of $7.72.

A quarterly earnings growth rate of 15.6%.

An acceptable current ratio of 1.1.

An excellent interest coverage ratio of 159.

A good payout ratio of 51% and great five-year average payout ratio of 49%.

A good five-year dividend growth rate of 23.6%.

A free cash flow yield of 3.24%.

An incredible long dividend history; it has been paying dividends since 1902.

100K invested for 10 years would have grown to 201k.

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 - Chevron Vs. Statoil: Is There A Clear Winner?

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 - 5 Great Plays: EMC Our Top Pick And Champ In Data Storage.

Company: Exelon Corp

Levered Free Cash Flow = $1.38B

Basic Key ratios

  1. Percentage Held by Insiders = 0.09
  2. Relative Strength 52 weeks = 54
  3. Dividend five-year Growth = 23%
  4. Cash Flow five-year Average = 7.72
  5. Dividend Yield five-Year Average = 4.03

Growth

  1. Net Income ($mil) 12/2011 = 2495
  2. Net Income ($mil) 12/2010 = 2563
  3. Net Income ($mil) 12/2009 = 2707
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -2.65
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 15.65
  1. EBITDA ($mil) 12/2011 = 6982
  2. EBITDA ($mil) 12/2010 = 7981
  3. EBITDA ($mil) 12/2009 = 7751
  4. Net Income Reported Quarterlytr ($mil) = 606
  5. Annual Net Income this Yr/Net Income last Yr = -2.65
  6. Cash Flow ($/share) 12/2011 = 7.64
  7. Cash Flow ($/share) 12/2010 = 8.42
  8. Cash Flow ($/share) 12/2009 = 8.07
  1. Sales ($mil) 12/2011 = 19184
  2. Sales ($mil) 12/2010 = 18644
  3. Sales ($mil) 12/2009 = 17318
  1. Annual EPS before NRI 12/2007 = 4.31
  2. Annual EPS before NRI 12/2008 = 4.17
  3. Annual EPS before NRI 12/2009 = 4.12
  4. Annual EPS before NRI 12/2010 = 3.95
  5. Annual EPS before NRI 12/2011 = 4.16

Dividend history

  1. Dividend Yield = 5.6%
  2. Dividend Yield 5 Year Average 12/2011 = 4.03
  3. Dividend Yield 5 Year Average 09/2011 = 4.03
  4. Annual Dividend 12/2011 = 2.1
  5. Annual Dividend 12/2010 = 2.1
  6. Forward Yield = 5.54
  7. Dividend 5 year Growth = 23%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.51
  2. Payout Ratio 5 Year Average 12/2011 = 0.49
  3. Payout Ratio 5 Year Average 09/2011 = 0.49
  4. Payout Ratio 5 Year Average 06/2011 = 0.49
  5. Change in Payout Ratio = 0.01

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -10.71
  2. EPS Growth Quarterly(1)/Q(-3) = 129.92
  3. ROE 5 Year Average 09/2011 = 23.37
  4. Return on Investment 06/2011 = 10.4
  5. Debt/Total Cap 5 Year Average 12/2011 = 49.63
  6. Current Ratio 06/2011 = 1.1
  7. Current Ratio 5 Year Average = 1.2
  8. Quick Ratio = 0.93
  9. Cash Ratio = 0.4
  10. Interest Coverage = 159

Valuation

  1. Book Value Quarterly = 21.7
  2. Price/ Book = 1.75
  3. Price/ Cash Flow = 4.96
  4. Price/ Sales = 1.68
  5. EV/EBITDA 12 Mo = 6.22

Company:

Levered Free Cash Flow = 1.25B

Basic Key ratios

  1. Percentage Held by Insiders = 0.17

Growth

  1. Net Income ($mil) 12/2011 = 705
  2. Net Income ($mil) 12/2010 = 1162
  3. Net Income ($mil) 12/2009 = 489
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -31.68
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -79.81
  1. EBITDA ($mil) 12/2011 = 3680
  2. EBITDA ($mil) 12/2010 = 3008
  3. EBITDA ($mil) 12/2009 = 993
  4. Net Income Reported Quarterlytr ($mil) = 43
  5. Annual Net Income this Yr/ Net Income last Yr = -39.31
  6. Cash Flow ($/share) 12/2011 = 5.19
  7. Cash Flow ($/share) 12/2010 = 4.13
  8. Cash Flow ($/share) 12/2009 = 0.98
  1. Sales ($mil) 12/2011 = 6483
  2. Sales ($mil) 12/2010 = 5657
  3. Sales ($mil) 12/2009 = 5556
  1. Annual EPS before NRI 12/2007 = 2.46
  2. Annual EPS before NRI 12/2008 = 3.55
  3. Annual EPS before NRI 12/2009 = 0.97
  4. Annual EPS before NRI 12/2010 = 1.05
  5. Annual EPS before NRI 12/2011 = 1.47

Dividend history

  1. Dividend Yield = 1.00
  2. Dividend Yield 5 Year Average =0.8%
  3. Annual Dividend 12/2011 = 0.2
  4. Annual Dividend 12/2010 = 0.19
  5. Forward Yield = 1.07
  6. 5 year dividend growth rate= 21.7%
  1. Dividend sustainability
  1. Payout Ratio 06/2011 = 0.14
  2. Payout Ratio 5 Year Average 06/2011 = 0.11
  3. Change in Payout Ratio = 0.03

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -28.15
  2. Next 3-5 Year Estimate EPS Growth rate = 7
  3. EPS Growth Quarterly(1)/Q(-3) = -170
  4. ROE 5 Year Average 06/2011 = 17.26
  5. Return on Investment 06/2011 = 6.3
  6. Debt/Total Cap 5 Year Average 06/2011 = 43.63
  1. Current Ratio 06/2011 = 1.08
  2. Current Ratio 5 Year Average = 1.36
  3. Quick Ratio = 0.98
  4. Cash Ratio = 0.33
  5. Interest Coverage =7.9

Valuation

  1. Price/ Book = 1.23
  2. Price/ Cash Flow = 14.70
  3. Price/ Sales = 1.59
  4. Price/Free cash flow= 4.30
  5. EV/EBITDA 12 Mo = 3.65

Company: American Water Works (NYSE: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 ($mil) 12/2009 = -233
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 24.77
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 61.5
  1. EBITDA ($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

Company: First City Financial (NASDAQ:FCFC)

Basic Key ratios

  1. Percentage Held by Insiders = 18.89
  2. Relative Strength 52 weeks = 87
  3. Cash Flow 5 -year Average = 0.54

Growth

  1. Net Income ($mil) 12/2011 = 24
  2. Net Income ($mil) 12/2010 = 13
  3. Net Income ($mil) 12/2009 = 19
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 93.69
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 762.43
  1. EBITDA ($mil) 12/2011 = 58
  2. EBITDA ($mil) 12/2010 = 58
  3. EBITDA ($mil) 12/2009 = 47
  4. Net Income Reported Quarterlytr ($mil) = 15
  5. Annual Net Income this Yr/ Net Income last Yr = 93.68
  6. Cash Flow ($/share) 12/2011 = 2.57
  7. Cash Flow ($/share) 12/2010 = 1.25
  8. Cash Flow ($/share) 12/2009 = 1.62
  1. Sales ($mil) 12/2011 = 74
  2. Sales ($mil) 12/2010 = 86
  3. Sales ($mil) 12/2009 = 80
  1. Annual EPS before NRI 12/2007 = 0.19
  2. Annual EPS before NRI 12/2008 = -2.19
  3. Annual EPS before NRI 12/2009 = 1.18
  4. Annual EPS before NRI 12/2010 = 0.84
  5. Annual EPS before NRI 12/2011 = 2.33

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 21.8
  2. EPS Growth Quarterly(1)/Q(-3) = 3-108.33
  3. ROE 5 Year Average 12/2011 = 1.3
  4. ROE 5 Year Average 09/2011 = 1.3
  5. ROE 5 Year Average 06/2011 = 1.57
  6. Return on Investment 06/2011 = 18.25
  7. Debt/Total Cap 5 Year Average 12/2011 = 2.63
  8. Debt/Total Cap 5 Year Average 09/2011 = 2.63
  9. Debt/Total Cap 5 Year Average 06/2011 = 2.57
  10. Current Ratio 06/2011 = 0.44
  11. Current Ratio 5 Year Average = 0.34
  12. Quick Ratio = 0.4
  13. Cash Ratio = 0.19
  14. Interest Coverage Quarterly = 4.47

Valuation

  1. Book Value Quarterly = 13.22
  2. Price/ Book = 0.63
  3. Price/ Cash Flow = 3.25
  4. Price/ Sales = 1.17
  5. EV/EBITDA 12 Mo = 0.87

Company: China Life Insurance (NYSE:LFC)

Basic Key ratios

  1. Relative Strength 52 weeks = 31
  2. Dividend 5-year Growth = 30.35
  3. Cash Flow 5 -year Average = 10.5
  4. Dividend Yield 5-Year Average = 1.41

Growth

  1. Net Income ($mil) 12/2011 = 2866
  2. Net Income ($mil) 12/2010 = 5001
  3. Net Income ($mil) 12/2009 = 4843
  4. Quarterly Net Income this Quarterly/same Quarter year ago = -80.06
  1. EBITDA ($mil) 12/2011 = 3476
  2. EBITDA ($mil) 12/2010 = 6331
  3. EBITDA ($mil) 12/2009 = 6350
  4. Net Income Reported Quarterlytr ($mil) = 256
  5. Annual Net Income this Yr/ Net Income last Yr = -42.69
  6. Cash Flow ($/share) 12/2011 = 6.46
  7. Cash Flow ($/share) 12/2010 = 10.57
  8. Cash Flow ($/share) 12/2009 = 10.25
  1. Sales ($mil) 12/2011 = 60115
  2. Sales ($mil) 12/2010 = 57104
  3. Sales ($mil) 12/2009 = 50076
  1. Annual EPS before NRI 12/2007 = 2.85
  2. Annual EPS before NRI 12/2008 = 1.49
  3. Annual EPS before NRI 12/2009 = 2.57
  4. Annual EPS before NRI 12/2010 = 2.7
  5. Annual EPS before NRI 12/2011 = 1.55

Dividend history

  1. Dividend Yield = 2.06
  2. Dividend Yield 5 Year Average 12/2011 = 1.41
  3. Dividend Yield 5 Year Average 09/2011 = 1.41
  4. Annual Dividend 12/2011 = 0.81
  5. Annual Dividend 12/2010 = 1.37
  6. Forward Yield = 1.2
  7. Dividend 5 year Growth 12/2011 = 30.35

Dividend sustainability

  1. Payout Ratio 5 Year Average 12/2011 = 1.28
  2. Payout Ratio 5 Year Average 09/2011 = 1.28
  3. Payout Ratio 5 Year Average 06/2011 = 1.28

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -33.61
  2. Next 3-5 Year Estimate EPS Growth rate = 24.38
  3. EPS Growth Quarterly(1)/Q(-3) = 178.13
  4. ROE 5 Year Average 12/2011 = 18.36
  5. ROE 5 Year Average 09/2011 = 18.36
  6. ROE 5 Year Average 06/2011 = 18.36
  7. Debt/Total Cap 5 Year Average 12/2011 = 1.51
  8. Debt/Total Cap 5 Year Average 09/2011 = 1.51
  9. Debt/Total Cap 5 Year Average 06/2011 = 1.51
  1. Current Ratio 06/2011 = 0.52
  2. Current Ratio 5 Year Average = 4.08
  3. Quick Ratio = 0.52
  4. Cash Ratio = 0.45
  5. Interest Coverage Quarterly = N/A

Valuation

  1. Book Value Quarterly = 60.42
  2. Price/ Book = 0.65
  3. Price/ Cash Flow = 6.1
  4. EV/EBITDA 12 Mo = -18.87

Conclusion

Investors should wait for the market to let out some more steam before committing large amount 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.

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: Exelon A Top Pick Among Our 5 Interesting 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. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com.