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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.

Consider ArcelorMittal for the following reasons:

A good five dividend growth rate of 12.59%.

A five-year cash flow average of 9.31.

Net income surged from $75 million in 2009 to a stunning $2.25 billion in 2011.

EBITDA increased from $1.02 billion in 2009 to $9.2 billion in 2011.

It has a massive levered free cash flow of $4.23 billion.

Cash flow per share increased from $4.88 in 2009 to $5.04 in 2011.

Sales increased from $65 billion in 2009 to $93.9 billion in 2011.

It has a good long-term debt to equity ratio of 0.42.

A high beta of 2.65 which makes it a good candidate for covered writes. Selling covered calls open up a second stream of income. If one is bullish on the stock, then the high beta is also good for selling naked puts.

It has a decent yield of 3.7, which is well above the official inflation rate.

A great payout ratio of 38%.

A five average payout ratio of only 25%.

It has an estimated 3-5 year EPS projected growth rate of 21%.

An acceptable quick and current ratio of 1.50 and 1.39 respectively.

$100K invested for 10 years would have grown to $1.05 million.

Consider employing the following strategy in regards to opening new positions in ArcelorMittal:

Wait for it for it to pull back and test the 14.00-15.00 ranges and then sell naked puts with 3-6 months of time on them. You can sell puts with strikes in the 13-14 ranges. If the stock trades below the price you will be assigned the shares. Your final price will be the strike minus the premium you were paid for the put. For example, if you sold the Sept 14 puts when it's trading at 14.50 you would probably get close to $2 for the Sept 14 puts, so your final price would be $12.

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 it is are making. This situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, the company 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 Dividend Stocks For Investors To Reflect on.

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.

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 - Microsoft Our Favorite Among 5 Growth Candidates.

Company: ArcelorMittal (NYSE:MT)

Levered Free Cash Flow = $4.32B

Basic Key ratios

  1. Percentage Held by Insiders = 0.06
  2. Relative Strength 52 weeks = 17
  3. Dividend 5-year Growth = -12.59
  4. Cash Flow 5 -year Average = 9.31
  5. Dividend Yield 5-Year Average = 2.70

Growth

  1. Net Income ($mil) 12/2011 = 2259
  2. Net Income ($mil) 12/2010 = 3005
  3. Net Income ($mil) 12/2009 = 75
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -23.37
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -28.21
  1. EBITDA ($mil) 12/2011 = 9294
  2. EBITDA ($mil) 12/2010 = 7829
  3. EBITDA ($mil) 12/2009 = 1020
  4. Net Income Reported Quarterly ($mil) = -1000
  5. Annual Net Income this Yr/ Net Income last Yr = -24.83
  6. Cash Flow ($/share) 12/2011 = 5.04
  7. Cash Flow ($/share) 12/2010 = 4.64
  8. Cash Flow ($/share) 12/2009 = 4.88
  1. Sales ($mil) 12/2011 = 93973
  2. Sales ($mil) 12/2010 = 78025
  3. Sales ($mil) 12/2009 = 65110
  1. Annual EPS before NRI 12/2009 = 1.5
  2. Annual EPS before NRI 12/2010 = 1.68
  3. Annual EPS before NRI 12/2011 = 1.8

Dividend history

  1. Dividend Yield = 3.70
  2. Dividend Yield 5 Year Average 12/2011 = 2.7
  3. Annual Dividend 12/2011 = 0.64
  4. Annual Dividend 12/2010 = 0.64
  5. Forward Yield = 3.79
  6. Dividend 5 year Growth 12/2011 = -12.59

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.36
  2. Payout Ratio 5 Year Average 12/2011 = 0.25
  3. Payout Ratio 5 Year Average 09/2011 = 0.25
  4. Payout Ratio 5 Year Average 06/2011 = 0.24
  5. Change in Payout Ratio = 0.11

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -54.53
  2. Next 3-5 Year Estimate EPS Growth rate = 21.29
  3. EPS Growth Quarterly(1)/Q(-3) = 152.5
  4. ROE 5 Year Average 12/2011 = 11.19
  5. Return on Investment 06/2011 = 3.66
  6. Debt/Total Cap 5 Year Average 12/2011 = 27.51
  1. Current Ratio 06/2011 = 1.5
  2. Current Ratio 5 Year Average = 1.39
  3. Quick Ratio = 0.58
  4. Cash Ratio = 0.31
  5. Interest Coverage Quarterly = 1.90

Valuation

  1. Book Value Quarterly = 38.75
  2. Price/ Book = 0.43
  3. Price/ Cash Flow = 3.34
  4. Price/ Sales = 0.28
  5. EV/EBITDA 12 Mo = 4.95

Company: Yamane Gold Inc (NYSE:AUY)

Basic Key ratios

  1. Percentage Held by Insiders = 2.7
  2. Relative Strength 52 weeks = 78
  3. Dividend 5-year Growth = 37.41
  4. Cash Flow 5 -year Average = 0.69
  5. Dividend Yield 5-Year Average = 0.7

Growth

  1. Net Income ($mil) 12/2011 = 548
  2. Net Income ($mil) 12/2010 = 451
  3. Net Income ($mil) 12/2009 = 193
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 21.46
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -44.14
  1. EBITDA ($mil) 12/2011 = 1196
  2. EBITDA ($mil) 12/2010 = 906
  3. EBITDA ($mil) 12/2009 = 585
  4. Net Income Reported Quarterlytr ($mil) = 90
  5. Annual Net Income this Yr/ Net Income last Yr = 21.45
  6. Cash Flow ($/share) 12/2011 = 1.43
  7. Cash Flow ($/share) 12/2010 = 1.01
  8. Cash Flow ($/share) 12/2009 = 0.79
  1. Sales ($mil) 12/2011 = 2173
  2. Sales ($mil) 12/2010 = 1687
  3. Sales ($mil) 12/2009 = 1183
  1. Annual EPS before NRI 12/2007 = 0.53
  2. Annual EPS before NRI 12/2008 = 0.52
  3. Annual EPS before NRI 12/2009 = 0.47
  4. Annual EPS before NRI 12/2010 = 0.61
  5. Annual EPS before NRI 12/2011 = 0.96

Dividend history

  1. Dividend Yield = 1.52
  2. Dividend Yield 5 Year Average 12/2011 = 0.7
  3. Dividend Yield 5 Year Average 09/2011 = 0.7
  4. Annual Dividend 12/2011 = 0.16
  5. Annual Dividend 12/2010 = 0.08
  6. Forward Yield = 1.52
  7. Dividend 5 year Growth 12/2011 = 37.41

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.21
  2. Payout Ratio 5 Year Average 12/2011 = 0.14
  3. Payout Ratio 5 Year Average 09/2011 = 0.14
  4. Payout Ratio 5 Year Average 06/2011 = 0.14
  5. Change in Payout Ratio = 0.07

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 8.65
  2. Next 3-5 Year Estimate EPS Growth rate = 14.9
  3. EPS Growth Quarterly(1)/Q(-3) = -125
  4. ROE 5 Year Average 12/2011 = 6.59
  5. ROE 5 Year Average 09/2011 = 6.59
  6. ROE 5 Year Average 06/2011 = 6.51
  7. Return on Investment 06/2011 = 9.11
  8. Debt/Total Cap 5 Year Average 12/2011 = 6.25
  9. Debt/Total Cap 5 Year Average 09/2011 = 6.25
  10. Debt/Total Cap 5 Year Average 06/2011 = 5.94
  1. Current Ratio 06/2011 = 2.23
  2. Current Ratio 5 Year Average = 1.93
  3. Quick Ratio = 1.9
  4. Cash Ratio = 1.48
  5. Interest Coverage Quarterly = 12.38

Valuation

  1. Book Value Quarterly = 10.05
  2. Price/ Book = 1.44
  3. Price/ Cash Flow = 10.09
  4. Price/ Sales = 4.97
  5. EV/EBITDA 12 Mo = 8.93

Notes

This is another great play which we will be reviewing in detail shortly. $100K invested in it for 10 years would have grown to $600K.

Company: Boston Scientific (NYSE:BSX)

Basic Key ratios

  1. Percentage Held by Insiders = 1.25
  2. Relative Strength 52 weeks = 38
  3. Cash Flow 5 -year Average = 1.85
  4. Dividend Yield 5-Year Average = 0

Growth

  1. Net Income ($mil) 12/2011 = 441
  2. Net Income ($mil) 12/2010 = -1065
  3. Net Income ($mil) 12/2009 = -1025
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -6.62
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 465
  1. EBITDA ($mil) 12/2011 = 2358
  2. EBITDA ($mil) 12/2010 = 2028
  3. EBITDA ($mil) 12/2009 = -55
  4. Net Income Reported Quarterlytr ($mil) = 113
  5. Annual Net Income this Yr/ Net Income last Yr = 141.41
  6. Cash Flow ($/share) 12/2011 = 1.47
  7. Cash Flow ($/share) 12/2010 = 2.26
  8. Cash Flow ($/share) 12/2009 = 1.34
  1. Sales ($mil) 12/2011 = 7622
  2. Sales ($mil) 12/2010 = 7806
  3. Sales ($mil) 12/2009 = 8188
  1. Annual EPS before NRI 12/2007 = 0.77
  2. Annual EPS before NRI 12/2008 = 0.58
  3. Annual EPS before NRI 12/2009 = 0.78
  4. Annual EPS before NRI 12/2010 = 0.48
  5. Annual EPS before NRI 12/2011 = 0.49

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -24.85
  2. Next 3-5 Year Estimate EPS Growth rate = 4.88
  3. EPS Growth Quarterly(1)/Q(-3) = -107.14
  4. ROE 5 Year Average 12/2011 = 6.44
  5. Return on Investment 06/2011 = 4.55
  6. Debt/Total Cap 5 Year Average 12/2011 = 31.26
  7. Current Ratio 06/2011 = 1.72
  8. Current Ratio 5 Year Average = 1.57
  9. Quick Ratio = 1.2
  10. Cash Ratio = 0.51
  11. Interest Coverage Quarterly = 2.41

Valuation

  1. Book Value Quarterly = 7.66
  2. Price/ Book = 0.72
  3. Price/ Cash Flow = 3.77
  4. Price/ Sales = 1.06
  5. EV/EBITDA 12 Mo = 5.1

Company: Southern Company (NYSE:SO)

Growth

  1. Net Income ($mil) 12/2011 = 2268
  2. Net Income ($mil) 12/2010 = 2040
  3. Net Income ($mil) 12/2009 = 1708
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 9.53
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 63.91
  1. EBITDA ($mil) 12/2011 = 6392
  2. EBITDA ($mil) 12/2010 = 5792
  3. EBITDA ($mil) 12/2009 = 5297
  4. Net Income Reported Quarterlytr ($mil) = 277
  5. Annual Net Income this Yr/ Net Income last Yr = 11.18
  6. Cash Flow ($/share) 12/2011 = 5.01
  7. Cash Flow ($/share) 12/2010 = 4.66
  8. Cash Flow ($/share) 12/2009 = 4.62
  1. Sales ($mil) 12/2011 = 17657
  2. Sales ($mil) 12/2010 = 17456
  3. Sales ($mil) 12/2009 = 15743
  1. Annual EPS before NRI 12/2007 = 2.24
  2. Annual EPS before NRI 12/2008 = 2.37
  3. Annual EPS before NRI 12/2009 = 2.32
  4. Annual EPS before NRI 12/2010 = 2.37
  5. Annual EPS before NRI 12/2011 = 2.57

Dividend history

  1. Dividend Yield = 4.15
  2. Dividend Yield 5 Year Average 12/2011 = 4.86
  3. Dividend Yield 5 Year Average 09/2011 = 4.86
  4. Annual Dividend 12/2011 = 1.87
  5. Annual Dividend 12/2010 = 1.8
  6. Forward Yield = 4.3
  7. Dividend 5 year Growth 12/2011 = 3.93

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.73
  2. Payout Ratio 5 Year Average 12/2011 = 0.74
  3. Payout Ratio 5 Year Average 09/2011 = 0.74
  4. Payout Ratio 5 Year Average 06/2011 = 0.74
  5. Change in Payout Ratio = -0.01

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 13.66
  2. Next 3-5 Year Estimate EPS Growth rate = 5
  3. EPS Growth Quarterly(1)/Q(-3) = 140
  4. ROE 5 Year Average 12/2011 = 13.59
  5. ROE 5 Year Average 09/2011 = 13.59
  6. ROE 5 Year Average 06/2011 = 13.63
  7. Return on Investment 06/2011 = 6.12
  8. Debt/Total Cap 5 Year Average 12/2011 = 52.57
  9. Debt/Total Cap 5 Year Average 09/2011 = 52.57
  10. Debt/Total Cap 5 Year Average 06/2011 = 52.56
  1. Current Ratio 06/2011 = 0.95
  2. Current Ratio 5 Year Average = 0.98
  3. Quick Ratio = 0.61
  4. Cash Ratio = 0.41
  5. Interest Coverage Quarterly = 2.7

Valuation

  1. Book Value Quarterly = 21.21
  2. Price/ Book = 2.15
  3. Price/ Cash Flow = 9.1
  4. Price/ Sales = 2.22
  5. EV/EBITDA 12 Mo = 8.91

Company: Mindray Medical (NYSE:MR)

Basic Key ratios

  1. Relative Strength 52 weeks = 86
  2. Dividend 5-year Growth = 3.85
  3. Cash Flow 5 -year Average = 1.76
  4. Dividend Yield 5-Year Average = 0.94

Growth

  1. Net Income ($mil) 12/2011 = 167
  2. Net Income ($mil) 12/2010 = 155
  3. Net Income ($mil) 12/2009 = 139
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 5.56
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 14
  1. EBITDA ($mil) 12/2011 = 191
  2. EBITDA ($mil) 12/2010 = 204
  3. EBITDA ($mil) 12/2009 = 201
  4. Net Income Reported Quarterlytr ($mil) = 47
  5. Annual Net Income this Yr/ Net Income last Yr = 7.37
  6. Cash Flow ($/share) 12/2011 = 2.04
  7. Cash Flow ($/share) 12/2010 = 2.27
  8. Cash Flow ($/share) 12/2009 = 2.19
  1. Sales ($mil) 12/2011 = 881
  2. Sales ($mil) 12/2010 = 704
  3. Sales ($mil) 12/2009 = 634
  1. Annual EPS before NRI 12/2007 = 0.73
  2. Annual EPS before NRI 12/2008 = 1.09
  3. Annual EPS before NRI 12/2009 = 1.21
  4. Annual EPS before NRI 12/2010 = 1.39
  5. Annual EPS before NRI 12/2011 = 1.47

Dividend history

  1. Dividend Yield = 1.9
  2. Dividend Yield 5 Year Average 12/2011 = 0.94
  3. Dividend Yield 5 Year Average 09/2011 = 0.94
  4. Annual Dividend 12/2011 = 0.26
  5. Annual Dividend 12/2010 = 0.16
  6. Forward Yield = 1.9
  7. Dividend 5 year Growth 12/2011 = 3.85

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.18
  2. Payout Ratio 5 Year Average 12/2011 = 0.25
  3. Payout Ratio 5 Year Average 09/2011 = 0.25
  4. Payout Ratio 5 Year Average 06/2011 = 0.25
  5. Change in Payout Ratio = -0.06

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 18.26
  2. Next 3-5 Year Estimate EPS Growth rate = 16.36
  3. EPS Growth Quarterly(1)/Q(-3) = -128.13
  4. ROE 5 Year Average 12/2011 = 22.37
  5. ROE 5 Year Average 09/2011 = 22.37
  6. ROE 5 Year Average 06/2011 = 22.37
  7. Return on Investment 06/2011 = 15.38
  8. Debt/Total Cap 5 Year Average 12/2011 = 3.48
  9. Debt/Total Cap 5 Year Average 09/2011 = 3.48
  10. Debt/Total Cap 5 Year Average 06/2011 = 3.27
  1. Current Ratio 06/2011 = 3.65
  2. Current Ratio 5 Year Average = 3.24
  3. Quick Ratio = 3.28
  4. Cash Ratio = 2.5
  5. Interest Coverage Quarterly = 116.04

Valuation

  1. Book Value Quarterly = 13.47
  2. Price/ Book = 2.43
  3. Price/ Cash Flow = 16.06
  4. Price/ Sales = 3.32
  5. EV/EBITDA 12 Mo = 11.66

Conclusion

Investors should wait for the market to let out some more steam before committing a large amount of money to the markets 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: ArcelorMittal Among 5 Good Plays To Reflect On

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.