Seeking Alpha
Profile| Send Message|
( followers)  

Today, we are going to take a look at five candidates with yields ranging from medium to high. Investors should not base their investment decision on yield alone. It would be wise to get a handle on some of the key metrics mentioned below. It is OK to deploy some capital into riskier plays but betting the house is asking for trouble.

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 - Frontier Communications A Perfect Candidate For A Short squeeze.

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.

Free cash flow yield is obtained by dividing free cash flow per share by the current price of each share. Generally lower ratios are associated with an unattractive investment and vice versa. Free cash flow takes into account capital expenditures and other ongoing costs associated with the day to day to functions of the business. In our view free cash flow yield is a better valuation metric then earnings yield because of the above factors.

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.

Cash ratio is the ratio of the company's total cash and cash equivalents to its current liabilities; this ratio is used as a measure of a company's liquidity. It allows investors to determine how fast the company would be able to pay its short term debts if push came to shove. Higher numbers are better because it makes it easier for a company to ask for new loans, increase in credit lines, etc.

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.

Levered free cash flow is the amount of cash available to stockholders 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. See 5 American Capital Agency 1 Of 3 Candidates To Consider.

Company: Enbridge Energy Partners (NYSE:EEP)

Basic Key ratios

  1. Relative Strength 52 weeks = 63
  2. Dividend 5-year Growth = 2.85
  3. Cash Flow 5-year Average = 3.14
  4. Dividend Yield 5-Year Average = 8.09

Growth

  1. Net Income ($mil) 12/2011 = 624
  2. Net Income ($mil) 12/2010 = -199
  3. Net Income ($mil) 12/2009 = 317
  4. Net Income Reported Quarterly ($mil) = 99
  1. EBITDA ($mil) 12/2011 = 1343
  2. EBITDA ($mil) 12/2010 = 456
  3. EBITDA ($mil) 12/2009 = 899
  4. Cash Flow ($/share) 12/2011 = 3.52
  5. Cash Flow ($/share) 12/2010 = 3.58
  6. Cash Flow ($/share) 12/2009 = 3.32
  1. Sales ($mil) 12/2011 = 9110
  2. Sales ($mil) 12/2010 = 7736
  3. Sales ($mil) 12/2009 = 5732
  1. Annual EPS before NRI 12/2007 = 1.39
  2. Annual EPS before NRI 12/2008 = 1.58
  3. Annual EPS before NRI 12/2009 = 1.38
  4. Annual EPS before NRI 12/2010 = 1.46
  5. Annual EPS before NRI 12/2011 = 1.39

Dividend history

  1. Dividend Yield = 7.00
  2. Dividend Yield 5 Year Average 12/2011 = 8.09
  3. Annual Dividend 12/2011 = 2.09
  4. Dividend 5 year Growth 12/2011 = 2.85

Dividend sustainability

  1. Payout Ratio 09/2011 = 1.64
  2. Payout Ratio 5 Year Average 12/2011 = 1.42

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 3
  2. 5 Year History EPS Growth 12/2011 = -0.96
  3. ROE 5 Year Average 12/2011 = 10.55
  4. Debt/Total Cap 5 Year Average 12/2011 = 51.49
  5. Current Ratio 12/2011 = 0.75
  6. Current Ratio 5 Year Average = 0.93
  7. Quick Ratio = 0.85
  8. Cash Ratio = 0.32
  9. Interest Coverage Quarterly = 2.37

Company: Enterprise Prod (NYSE:EPD)

Basic Key ratios

  1. Percentage Held by Insiders = 34.7
  2. Number of Institutional Sellers 12 Weeks = 1
  3. Relative Strength 52 weeks = 85
  4. Dividend 5-year Growth = 5.73
  5. Cash Flow 5-year Average = 2.37
  6. Dividend Yield 5-Year Average = 6.72

Growth

  1. Net Income ($mil) 12/2011 = 2047
  2. Net Income ($mil) 12/2010 = 321
  3. Net Income ($mil) 12/2009 = 204
  4. Net Income Reported Quarterly ($mil) = 651
  1. EBITDA ($mil) 12/2011 = 3867
  2. EBITDA ($mil) 12/2010 = 3137
  3. EBITDA ($mil) 12/2009 = 2690
  1. Cash Flow ($/share) 12/2011 = 3.34
  2. Cash Flow ($/share) 12/2010 = 1.63
  3. Cash Flow ($/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 = 5.1
  2. Dividend Yield 5 Year Average 12/2011 = 6.72
  3. Dividend 5 year Growth 12/2011 = 5.73

Dividend sustainability

  1. Payout Ratio 09/2011 = 1.06
  2. Payout Ratio 5 Year Average 12/2011 = 1.32

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 6.4
  2. 5 Year History EPS Growth 12/2011 = 15.17
  3. ROE 5 Year Average 12/2011 = 12.81
  4. Return on Investment 12/2011 = 7.94
  1. Current Ratio 12/2011 = 0.79
  2. Current Ratio 5 Year Average = 0.93
  3. Quick Ratio = 0.67
  4. Cash Ratio = 0.06
  5. Interest Coverage Quarterly = 4.33

Company: Energy Transfer Partners (NYSE:ETP)

Basic Key ratios

  1. Percentage Held by Insiders = 3
  2. Relative Strength 52 weeks = 56
  3. Dividend 5-year Growth = 1.81
  4. Cash Flow 5-year Average = 4.97
  5. Dividend Yield 5-Year Average = 7.65

Growth

  1. Net Income ($mil) 12/2011 = 669
  2. Net Income ($mil) 12/2010 = 617
  3. Net Income ($mil) 12/2009 = 792
  4. Net Income Reported Quarterly ($mil) = 1115
  1. EBITDA ($mil) 12/2011 = 1631
  2. EBITDA ($mil) 12/2010 = 1398
  3. EBITDA ($mil) 12/2009 = 1520
  1. Cash Flow ($/share) 12/2011 = 5.67
  2. Cash Flow ($/share) 12/2010 = 5.34
  3. Cash Flow ($/share) 12/2009 = 6.32
  1. Sales ($mil) 12/2011 = 6850
  2. Sales ($mil) 12/2010 = 5885
  3. Sales ($mil) 12/2009 = 5417
  1. Annual EPS before NRI 12/2007 = 3.31
  2. Annual EPS before NRI 12/2008 = 4.09
  3. Annual EPS before NRI 12/2009 = 2.51
  4. Annual EPS before NRI 12/2010 = 1.47
  5. Annual EPS before NRI 12/2011 = 1.48

Dividend history

  1. Dividend Yield = 7.9%
  2. Dividend Yield 5 Year Average 12/2011 = 7.65
  3. Annual Dividend 12/2011 = 3.58
  4. Forward Yield = 8.11
  5. Dividend 5 year Growth 12/2011 = 1.81

Dividend sustainability

  1. Payout Ratio 09/2011 = 3.41
  2. Payout Ratio 5 Year Average 12/2011 = 1.68
  3. Change in Payout Ratio = 1.73

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -7.1
  2. Next 3-5 Year Estimate EPS Growth rate = 12.05
  3. 5 Year History EPS Growth 12/2011 = -19.3
  4. ROE 5 Year Average 12/2011 = 19.14
  5. Current Ratio 12/2011 = 1.1
  6. Current Ratio 5 Year Average = 1.15
  7. Interest Coverage Quarterly = 9.33

Company: Ferrellgas Partners LP (NYSE:FGP)

Basic Key ratios

  1. Percentage Held by Insiders = 0.48
  2. Relative Strength 52 weeks = 27
  3. Dividend 5-year Growth = 0
  4. Cash Flow 5-year Average = 1.82
  5. Dividend Yield 5-Year Average = 9.71

Growth

  1. Net Income ($mil) 12/2011 = -44
  2. Net Income ($mil) 12/2010 = 33
  3. Net Income ($mil) 12/2009 = 53
  4. Net Income Reported Quarterly ($mil) = 36
  1. EBITDA ($mil) 12/2011 = 142
  2. EBITDA ($mil) 12/2010 = 219
  3. EBITDA ($mil) 12/2009 = 228
  1. Cash Flow ($/share) 12/2011 = 0.95
  2. Cash Flow ($/share) 12/2010 = 1.85
  3. Cash Flow ($/share) 12/2009 = 2.07
  1. Sales ($mil) 12/2011 = 2423
  2. Sales ($mil) 12/2010 = 2099
  3. Sales ($mil) 12/2009 = 2070
  1. Annual EPS before NRI 12/2007 = 0.6
  2. Annual EPS before NRI 12/2008 = 0.4
  3. Annual EPS before NRI 12/2009 = 0.89
  4. Annual EPS before NRI 12/2010 = 0.67
  5. Annual EPS before NRI 12/2011 = -0.14

Dividend history

  1. Dividend Yield = 12.8
  2. Dividend Yield 5 Year Average 12/2011 = 9.71
  3. Payout Ratio 06/2011 = 9.52
  4. Payout Ratio 5 Year Average 12/2011 = 5.04

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 4
  2. 5 Year History EPS Growth 12/2011 = -10.65
  3. ROE 5 Year Average 12/2011 = 27.39
  4. Current Ratio 12/2011 = 0.99
  5. Current Ratio 5 Year Average = 1.11
  6. Quick Ratio = 0.64
  7. Cash Ratio = 0.11
  8. Interest Coverage Quarterly = 2.56

Company: Kinder Morgan Energy (NYSE:KMP)

Basic Key ratios

  1. Percentage Held by Insiders = 20.72
  2. Relative Strength 52 weeks = 75
  3. Dividend 5-year Growth = 6.79
  4. Cash Flow 5-year Average = 9.4
  5. Dividend Yield 5-Year Average = 6.83

Growth

  1. Net Income ($mil) 12/2011 = 1258
  2. Net Income ($mil) 12/2010 = 1316
  3. Net Income ($mil) 12/2009 = 1268
  4. Net Income Reported Quarterly ($mil) = 206
  1. EBITDA ($mil) 12/2011 = 2809
  2. EBITDA ($mil) 12/2010 = 2780
  3. EBITDA ($mil) 12/2009 = 2628
  4. Cash Flow ($/share) 12/2011 = 11.72
  5. Cash Flow ($/share) 12/2010 = 10.34
  6. Cash Flow ($/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 = 6.10
  2. Dividend Yield 5 Year Average 12/2011 = 6.83
  3. Dividend 5 year Growth 12/2011 = 6.79

Dividend sustainability

  1. Payout Ratio 09/2011 = 2.65
  2. Payout Ratio 5 Year Average 12/2011 = 2.66

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 5
  2. 5 Year History EPS Growth 12/2011 = -2.46
  3. ROE 5 Year Average 12/2011 = 22.35
  4. Current Ratio 12/2011 = 1.67
  5. Current Ratio 5 Year Average = 0.61
  6. Quick Ratio = 0.47
  7. Interest Coverage Quarterly = 4.54

Conclusion

The markets are extremely oversold, and the potential for a relief rally is rather strong. We still believe there is more downside to this market before a multi month bottom takes hold. 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 even more investment ideas might find this article to be of interest: General Electric: An Option Strategy That Could Potentially triple your yield.

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: 5 Long-Term Basic Material Plays To Reflect On

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.