Seeking Alpha
Profile| Send Message|
( followers)  

Investors should not base their decision on yield alone; there are many stocks that offer extremely high yields but their performance over the years has been dismal; in fact, in some cases even with the yield the total rate of return has been negative for the past 3-5 years. One should look at the robustness of the company, the rate the dividend is growing at, is the dividend sustainable and finally one should take a look at the company's dividend history; companies with stellar records will do everything possible to avoid cutting the dividend in order to maintain this record. There are always exceptions to the rule. For example, American Capital agency has a high yield and has performed well over the past four years.

Reasons to like American Capital Agency (NASDAQ:AGNC):

  • An excellent yield of 16.10%
  • A strong quarterly revenue growth rate of 362%
  • Profit margins of 92%
  • A good five year ROE average of 18%
  • Operating margins of 93%
  • An excellent quarterly earnings growth rate of 387%
  • Projected year over year growth rate for 2012 of 10.89%
  • Net income soared from $119 million in 2009 to $770 million in 2011
  • A strong relative strength score of 74 out of a possible 100
  • A five-year cash flow rate of $3.36
  • A five-year dividend growth rate of 35.61%
  • A good interest coverage ratio of 7.00
  • $100K invested for five years would have grown to over $250K; if the dividends were reinvested the rate of return would be much higher

Important facts investors should be aware in regards to investing and REITs

Payout ratios are not that important when it comes to REITs as they are required by law to pay a majority of their cash flow as dividends. Payout ratios are calculated by dividing the dividend rate by the net income per share, and this is why the payout ratio for REITs is often higher than 100%. The more important ratio to focus on is the cash flow per share. If one focuses on the cash flow, one will see that in most cases, it exceeds the dividend declared per share.

Company: American Capital Agency

Basic Key ratios

  1. Relative Strength 52 weeks = 74
  2. Cash Flow 5-year Average = 3.36

Growth

  1. Net Income ($mil) 12/2011 = 770
  2. Net Income ($mil) 12/2010 = 288
  3. Net Income ($mil) 12/2009 = 119
  1. Cash Flow ($/share) 12/2011 = 5.18
  2. Cash Flow ($/share) 12/2010 = 4.13
  3. Cash Flow ($/share) 12/2009 = 5.22
  1. Sales ($mil) 12/2011 = 1135
  2. Sales ($mil) 12/2010 = 383
  3. Sales ($mil) 12/2009 = 174
  1. Annual EPS before NRI 12/2009 = 5.17
  2. Annual EPS before NRI 12/2010 = 4.39
  3. Annual EPS before NRI 12/2011 = 5.21

Dividend history

  1. Dividend Yield = 16.11
  2. Dividend Yield 5 Year Average 12/2011 = 19.14
  3. Annual Dividend 12/2011 = 5.6
  4. Dividend 5 year Growth 12/2011 = 35.61

Dividend sustainability

  1. Payout Ratio 09/2011 = 0.94
  2. Payout Ratio 5 Year Average 12/2011 = 1.17

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 2
  2. 5 Year History EPS Growth 12/2011 = 6.52
  3. ROE 5 Year Average 12/2011 = 18.35
  4. Current Ratio 12/2011 = 0.1
  5. Current Ratio 5 Year Average = 0.06
  6. Quick Ratio = 0.06
  7. Interest Coverage Quarterly = 7.07

Company: Cummins Inc (NYSE:CMI)

Basic Key ratios

  1. Percentage Held by Insiders = 0.45
  2. Number of Institutional Sellers 12 Weeks = 4
  3. Relative Strength 52 weeks = 58
  4. Dividend 5-year Growth = 31.03
  5. Cash Flow 5-year Average = 5.59
  6. Dividend Yield 5-Year Average = 1.37

Growth

  1. Net Income ($mil) 12/2011 = 1848
  2. Net Income ($mil) 12/2010 = 1040
  3. Net Income ($mil) 12/2009 = 428
  4. Net Income Reported Quarterly ($mil) = 455
  1. EBITDA ($mil) 12/2011 = 3040
  2. EBITDA ($mil) 12/2010 = 1977
  3. EBITDA ($mil) 12/2009 = 1001
  1. Cash Flow ($/share) 12/2011 = 10.63
  2. Cash Flow ($/share) 12/2010 = 6.77
  3. Cash Flow ($/share) 12/2009 = 4.06
  1. Sales ($mil) 12/2011 = 18048
  2. Sales ($mil) 12/2010 = 13226
  3. Sales ($mil) 12/2009 = 10800
  1. Annual EPS before NRI 12/2007 = 3.7
  2. Annual EPS before NRI 12/2008 = 4.21
  3. Annual EPS before NRI 12/2009 = 2.49
  4. Annual EPS before NRI 12/2010 = 5.17
  5. Annual EPS before NRI 12/2011 = 8.92

Dividend history

  1. Dividend Yield = 1.65
  2. Dividend 5 year Growth 12/2011 = 31.03
  3. Payout Ratio 09/2011 = 0.17

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 22.23
  2. 5 Year History EPS Growth 12/2011 = 20.24
  3. ROE 5 Year Average 12/2011 = 22.42
  4. Current Ratio 12/2011 = 2.02
  5. Quick Ratio = 1.35
  6. Interest Coverage Quarterly = 82.25

Company: Talisman Energy (NYSE:TLM)

Growth

  1. Net Income ($mil) 12/2011 = 776
  2. Net Income ($mil) 12/2010 = 629
  3. Net Income ($mil) 12/2009 = 385
  1. EBITDA ($mil) 12/2011 = 4569
  2. EBITDA ($mil) 12/2010 = 3521
  3. EBITDA ($mil) 12/2009 = -329
  4. Cash Flow ($/share) 12/2011 = 2.94
  5. Cash Flow ($/share) 12/2010 = 2.19
  6. Cash Flow ($/share) 12/2009 = 0.17
  1. Sales ($mil) 12/2011 = 8272
  2. Sales ($mil) 12/2010 = 6712
  3. Sales ($mil) 12/2009 = 7028
  1. Annual EPS before NRI 12/2009 = 0.17
  2. Annual EPS before NRI 12/2010 = 0.13
  3. Annual EPS before NRI 12/2011 = 0.51

Dividend history

  1. Dividend Yield = 2.7
  2. Dividend Yield 5 Year Average =1.4%
  3. Dividend 5 year Growth 12/2011 = 13.7%
  4. Payout Ratio = 31%

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 8.5
  2. ROE 5 Year Average 06/2011 = 11.46
  3. Current Ratio 06/2011 = 0.65
  4. Quick Ratio = 0.6
  5. Interest Coverage Quarterly = 18.66

Conclusion

The markets are still in a corrective mode, and we believe that we will need to see one more selling climax, followed by 1-2 days where the market closes in the red on low volume before a bottom is in place. Long-term investors can use strong pullbacks to slowly start deploying money into long-term investments. A great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at. Investors looking for other investment ideas might find these articles to be of interest - General Electric: An Option Strategy That Could Potentially triple your yield. and Alcatel-Lucent: Time To Buy Or Flee?

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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: EPS and Price vs. industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com.

Source: American Capital Agency 1 Of 3 Candidates To Consider