Seeking Alpha
Seeking Alpha Portfolio App for iPad
Finance
(1)

Are These Dividend Stocks Worth A Closer Look?

Jun 25 2012, 11:09 by: Tactical Investor  |  includes: AGNC, NGD, NLY, PBI, SCCO

Only stocks that met with most of the criteria listed below were included in this list. Novice investors might also be interested in looking at our suggested guidelines for spotting new plays. These are not absolute rules but suggestions to get the novice investor started. The criteria can be adjusted to suit your own specific style of trading. While there are some good plays that offer unusually high yields, one should not base one's investments on yield alone. There are many high yielding stocks whose performance for the past 3-5 years has been dismal.

  1. Net income should be trending upwards for the past three years.
  2. Cash flow per share should be rising for the past three years.
  3. EPS should be trending upwards for the past five years.
  4. Sales should be trending upwards for the past three years.
  5. In general if applicable the payout ratio should be below 100%.
  6. Current ratio of at least 1.5 or interest coverage ratio of 4.
  7. If the company has a positive levered free cash flow, it should be viewed as "icing on the cake."

Company: New Gold Inc (NGD)

Levered free cash flow = -$ 143.9 Million


(Click to enlarge)

Basic overview

  1. Beta = 0.98
  2. Quarterly revenue growth = - 1.4%
  3. Quarterly earnings growth = 35.6%
  4. Operating margins= 38.8%
  5. Profit margins= 27%
  6. Operating cash flow = $ 216 million
  7. Short ratio = 1.00
  8. Cash Flow 5 -year Average = 4.28
  9. Percentage held by institutions = 61.8%
  10. Relative Strength 52 weeks = 52

Growth

  1. Net Income ($mil) 12/2011 = 179
  2. Net Income ($mil) 12/2010 = 182
  3. Net Income ($mil) 12/2009 = -194
  4. Net Income Reported Quarterly ($mil) = 35
  5. EBITDA ($mil) 12/2011 = 335
  6. EBITDA ($mil) 12/2010 = 261
  7. EBITDA ($mil) 12/2009 = -106
  8. Cash Flow ($/share) 12/2011 = 0.59
  9. Cash Flow ($/share) 12/2010 = 0.49
  10. Cash Flow ($/share) 12/2009 = 0.16
  11. Sales ($mil) 12/2011 = 696
  12. Sales ($mil) 12/2010 = 530
  13. Sales ($mil) 12/2009 = 324
  14. Annual EPS before NRI 12/2007 = N/A
  15. Annual EPS before NRI 12/2008 = -0.69
  16. Annual EPS before NRI 12/2009 = 0
  17. Annual EPS before NRI 12/2010 = 0.29
  18. Annual EPS before NRI 12/2011 = 0.43


(Click to enlarge)

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 5
  2. ROE 5 Year Average = -2.14
  3. Return on Investment = 8.43
  4. Debt/Total Cap 5 Year Average = 12.68
  5. Current Ratio = 1.60
  6. Current Ratio 5 Year Average = 3.65
  7. Quick Ratio = 1.10
  8. Cash Ratio = 1.42
  9. Interest Coverage Quarterly = N/A
  10. Long term debt to equity ratio = 0.11
  11. Sales vs 1 year ago = 31.20%
  12. EPS vs 1 year ago = 36%

Notes

Even though this stock does not pay a dividend, it could make for a good long term investment. A good long term entry point would be in the $6.00 - 7.00 ranges. Another option would be to wait for a test of these ranges and then to sell puts at strikes you would not mind owning the stock at.

Company: Pitney Bowes Inc (PBI)

Levered free cash flow = $580.3 Million


(Click to enlarge)

Basic overview

  1. Quarterly earnings growth = 83.9%
  2. Quarterly revenue growth = - 5.10%
  3. Beta = 1.21
  4. Operating margins= 14.9%
  5. Profit margins= 13.2%
  6. Operating cash flow = $719.4 million
  7. Short percentage of float= 31%
  8. Cash Flow 5 -year Average = 4.28
  9. Percentage held by institutions = 96.1%

Growth

  1. Net Income ($mil) 12/2011 = 617
  2. Net Income ($mil) 12/2010 = 292
  3. Net Income ($mil) 12/2009 = 423
  4. EBITDA ($mil) 12/2011 = 817
  5. EBITDA ($mil) 12/2010 = 838
  6. EBITDA ($mil) 12/2009 = 1032
  7. Net Income Reported Quarterly ($mil) = 262
  8. Cash Flow ($/share) 12/2011 = 4.31
  9. Cash Flow ($/share) 12/2010 = 3.76
  10. Cash Flow ($/share) 12/2009 = 3.92
  11. Sales ($mil) 12/2011 = 5278
  12. Sales ($mil) 12/2010 = 5425
  13. Sales ($mil) 12/2009 = 5569
  14. Annual EPS before NRI 12/2007 = 2.71
  15. Annual EPS before NRI 12/2008 = 2.78
  16. Annual EPS before NRI 12/2009 = 2.28
  17. Annual EPS before NRI 12/2010 = 2.23
  18. Annual EPS before NRI 12/2011 = 2.26


(Click to enlarge)

Dividend history

  1. Dividend Yield = 10.10
  2. Dividend Yield 5 Year Average = 5.80
  3. Dividend 5 year Growth = 2.74

Dividend sustainability

  1. Payout Ratio = 0.43
  2. Payout Ratio 5 Year Average = 0.58

Performance

  1. ROE = 127.8%
  2. Return on Investment = 11.1
  3. Current Ratio = 1.10
  4. Current Ratio 5 Year Average = 1.09
  5. Quick Ratio = 0.8
  6. Cash Ratio = 0.36
  7. Interest Coverage = 4.10
  8. Sales vs 1 year ago = - 2.7%
  9. 5 year sales growth = - 2.86
  10. EPS 5 year growth rate = - 0.23
  11. Retention rate = 67%

Notes

While the yield is pretty good here, the performance has been dismal. This is an example of a stock that pays a high yield but has performed dismally for the past several years. It is now trading at multi-decade lows. One way to trade this play would be to wait for a retest of the lows and then open up long positions in this stock. Consider taking some profits off the table when it trades in the 16.00-18.00 ranges and close the rest of the position out if it trades in the 20-22 ranges. Please note these are just suggestions based on Technical analysis. If your views our outlook is different, then feel free to put your own strategy into play. At this point in time, we would have to state that this play is only for investors willing to take a risk. If you are looking for other high-yield plays that offer less of risk, consider American Agency Capital Corp (AGNC) and Annaly Capital Management (NLY).

Annaly Capital Management offers a 13.00% yield, has a quarterly earnings growth rate of 28.8%, a quarterly revenue growth rate of 29.8, a low beta of 0.22, a profit margin of 63%, a five-year dividend average of 13% and a five year dividend growth rate of 31%.

American Agency Capital Corp offers a strong yield of 15.4%. It is trading close to its 52-week highs, has an incredible quarterly earnings growth rate of 378%, an equally strong quarterly revenue growth rate of 362%, a profit margin of 92%, a low beta of 0.20 and operating cash flow of $1.36 billion.

Company: Southern Copper (SCCO)

Levered free cash flow = $1.57 Billion


(Click to enlarge)

Basic overview

  1. Quarterly earnings growth = 29%
  2. Quarterly revenue growth = 12.7%
  3. Beta = 1.92
  4. Operating margins= 54.6%
  5. Profit margins= 35.3%
  6. Relative Strength 52 weeks = 46
  7. Cash Flow 5 -year Average = 2.22
  8. Operating cash flow= $2.28 billion
  9. ROE = 58.84%
  10. Short percentage of Float = 6.3%

Growth

  1. Net Income ($mil) 12/2011 = 2336
  2. Net Income ($mil) 12/2010 = 1554
  3. Net Income ($mil) 12/2009 = 929
  4. Net Income Reported Quarterly ($mil) = 537
  5. EBITDA ($mil) 12/2011 = 3923
  6. EBITDA ($mil) 12/2010 = 2873
  7. EBITDA ($mil) 12/2009 = 1776
  8. Cash Flow ($/share) 12/2011 = 3.09
  9. Cash Flow ($/share) 12/2010 = 2.14
  10. Cash Flow ($/share) 12/2009 = 1.4
  11. Sales ($mil) 12/2011 = 3193
  12. Sales ($mil) 12/2010 = 5150
  13. Sales ($mil) 12/2009 = 3734
  14. Annual EPS before NRI 12/2007 = 2.48
  15. Annual EPS before NRI 12/2008 = 1.58
  16. Annual EPS before NRI 12/2009 = 1.08
  17. Annual EPS before NRI 12/2010 = 1.81
  18. Annual EPS before NRI 12/2011 = 2.76


(Click to enlarge)

Dividend history

  1. Dividend Yield = 7.00%
  2. Dividend Yield 5 Year Average = 6.2
  3. Dividend 5 year Growth = - 0.53

Dividend sustainability

  1. Payout Ratio = 0.70
  2. Payout Ratio 5 Year Average = 0.87

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 17.58
  2. Return on Investment = 34.47
  3. Debt/Total Cap 5 Year Average = 31.24
  4. Current Ratio = 3.60
  5. Current Ratio 5 Year Average = 3.5
  6. Quick Ratio = 2.7
  7. Cash Ratio = 1.58
  8. Interest Coverage = 20.4
  9. Long term debt to equity = 0.61
  10. Sales vs 1 year ago = 32.40%
  11. 5 year EPS growth rate = 0.86%
  12. 5 year capital spending growth rate = 7.26%

Notes

It is still in a downtrend and attempting to put in a bottom. Our suggestion would be to wait for a test of the 23-25 ranges. If this occurs on low volume, then consider deploying some money into this play. We would split the money into 2-3 lots and deploy one lot if it traded down to the stated ranges on low volume. Another option would be to sell puts at those strikes or at strikes you would not mind owning the stock when and if it trades down to the 23-25 ranges.

Conclusion

As the market is still in a corrective phase, there is a good chance it could re test its lows before trending higher. In general, 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.

Disclaimer: It is imperative that you do your due diligence and then determine if any of the above plays meets 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. 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.

About this author: