Dividend 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 a high 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 dividend growth rate, the sustainability of the dividend 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. Novice investors should consider following some or all of the guidelines we put together here: our suggested guidelines when searching for new investment ideas.
Reasons to be bullish on Duke Energy (DUK):
- Its merger with progress energy, Inc, is expected to be a good fit and add boost earnings. The combined assets of the two companies would make it the largest U.S. utility providing services to more than 7.1 million customers. The merger is expected to go through by July 8, 2012 and would enable the company to maintain its long-term goal of 4.5%-6% earnings growth.
- It has a strong balance sheet with a low long-term debt to capitalization ratio of 44% at the end of fiscal 2011. It closed 2011 with a cash and cash equivalents of $2.1 billion.
- A decent yield of 4.5%.
- A strong relative strength score of 82 out of a possible 100.
- A 5 year dividend average of 5.3%.
- Net income increased from $1.07 billion in 2009 to $1.7 billion in 2011.
- Profit margins of 10%.
- Operating margins of 22%.
- A low beta of 0.18 indicates that it's not a volatile stock.
- Cash flow increased from $2.68 in 2009 to $2.98 in 2011.
- Annual EPS before NRI increased from $1.25 in 2007 to $1.46 in 2011.
- A decent interest coverage ratio of 3.5.
- A projected 3-5 year EPS growth rate of 4.3%
- $100K invested for 10 years would have grown to $161K. If the dividends were reinvested the rate of return would have been much higher.
- A good free cash flow yield of 6.34%.
- While the rest of the market has been tanking this stock has actually been soaring to new highs.
Company: Duke Energy Corp
Basic Key ratios
- Number of Institutional Sellers 12 Weeks = 5
- Relative Strength 52 weeks = 82
- Cash Flow 5-year Average = 2.85
- Net Income ($mil) 12/2011 = 1706
- Net Income ($mil) 12/2010 = 1320
- Net Income ($mil) 12/2009 = 1075
- Net Income Reported Quarterly ($mil) = 295
- EBITDA ($mil) 12/2011 = 5350
- EBITDA ($mil) 12/2010 = 5044
- EBITDA ($mil) 12/2009 = 4428
- Cash Flow ($/share) 12/2011 = 2.98
- Cash Flow ($/share) 12/2010 = 2.93
- Cash Flow ($/share) 12/2009 = 2.63
- Sales ($mil) 12/2011 = 14529
- Sales ($mil) 12/2010 = 14272
- Sales ($mil) 12/2009 = 12731
- Annual EPS before NRI 12/2007 = 1.25
- Annual EPS before NRI 12/2008 = 1.21
- Annual EPS before NRI 12/2009 = 1.22
- Annual EPS before NRI 12/2010 = 1.43
- Annual EPS before NRI 12/2011 = 1.46
- Dividend Yield = 4.50
- Dividend Yield 5 Year Average 12/2011 = 5.37
- Dividend 5 year Growth 12/2011 = 3.47
- Payout Ratio = 0.89
- Payout Ratio 5 Year Average 12/2011 = 0.7
- Change in Payout Ratio = -0.01
- Next 3-5 Year Estimate EPS Growth rate = 4.67
- 5 Year History EPS Growth 12/2011 = 2.08
- ROE 5 Year Average 12/2011 = 8.53
- Current Ratio = 1.38
- Current Ratio 5 Year Average = 1.26
- Quick Ratio = 0.96
- Cash Ratio = 0.61
- Interest Coverage = 3.5
For investors looking for other ideas, detailed data has been provided for one additional company (see below). Furthermore, our latest article could provide additional ideas.
Company: ABB Ltd (ABB)
Levered Free Cash Flow = $1.74B
- Net Income ($mil) 12/2011 = 3168
- Net Income ($mil) 12/2010 = 2561
- Net Income ($mil) 12/2009 = 2901
- EBITDA ($mil) 12/2011 = 5752
- EBITDA ($mil) 12/2010 = 4615
- EBITDA ($mil) 12/2009 = 4902
- Cash Flow ($/share) 12/2011 = 1.88
- Cash Flow ($/share) 12/2010 = 1.45
- Cash Flow ($/share) 12/2009 = 1.52
- Sales ($mil) 12/2011 = 37990
- Sales ($mil) 12/2010 = 31589
- Sales ($mil) 12/2009 = 31795
- Annual EPS before NRI 12/2007 = 1.38
- Annual EPS before NRI 12/2008 = 1.37
- Annual EPS before NRI 12/2009 = 1.26
- Annual EPS before NRI 12/2010 = 1.15
- Annual EPS before NRI 12/2011 = 1.46
- Dividend Yield = 4.5
- Dividend Yield 5 Year Average 12/2011 = 1.15
- Dividend 5 year Growth = 45%
- Payout Ratio 06/2011 = 0.44
- Payout Ratio 5 Year Average 12/2011 = 0.18
- Next 3-5 Year Estimate EPS Growth rate = 11.6
- EPS Growth Quarterly(1)/Q(-3) = -137.93
- ROE 5 Year Average 12/2011 = 24.68
- Current Ratio 06/2011 = 1.40
- Current Ratio 5 Year Average = 1.56
- Quick Ratio = 1.09
- Interest Coverage Quarterly = 32.8
The markets are still in a corrective mode, but in the interim, some sort of relief rally could take hold as they are extremely oversold. 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 ideas might find these articles to be of interest.
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. 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. Earnings and growth estimates sourced from dailyfinance.com
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.