5 Good Dividend Plays To Reflect On

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 |  Includes: ARR, MDLZ, PBR, SNY, WFC
by: Tactical Investor

This list is meant to serve as a starting point for investors. A lot of data has been provided, so it should be relatively easy for an investor to scroll down the list and decide if a stock warrants further attention. If a stock interests you, you can dig deeper and see if it meets with your investment criteria.

To help the novice investor, we have put out this guideline, which could prove to be useful in the selection process: Our suggested guidelines when searching for new investment ideas. A lot of key ratios will be used in this article and it would be good for investors to get a handle on some of the more important key ratios listed 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.

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.

Retention rate is the amount of net income that is not paid out as dividends. In other words, it is the money the company retains that can be used to grow the business, etc. It is calculated by subtracting 1 from the dividend ratio.

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.

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.

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.

Levered free cash flow is the amount of cash available to stock holders 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.

Company: Wells Fargo-New (NYSE:WFC)

Brief Overview

  1. Profit Margin = 21.9%
  2. Operating Margin = 37.6%
  3. Quarterly Revenue Growth = 8.4%
  4. Quarterly Earnings Growth = 13.00%
  5. Long term debt to equity = 0.97
  6. 5 year sales growth rate = 17.38%
  7. Operating Cash Flow = 12.36B
  8. Beta = 1.10
  9. Short ratio = 1.6%
  10. Relative Strength 52 weeks = 81
  11. Cash Flow 5 -year Average = 2.63

Growth

  1. Net Income ($mil) 12/2011 = 16211
  2. Net Income ($mil) 12/2010 = 12663
  3. Net Income ($mil) 12/2009 = 12667
  4. EBITDA ($mil) 12/2011 = 30238
  5. EBITDA ($mil) 12/2010 = 26132
  6. EBITDA ($mil) 12/2009 = 27015
  7. Cash Flow ($/share) 12/2011 = 3.43
  8. Cash Flow ($/share) 12/2010 = 2.77
  9. Cash Flow ($/share) 12/2009 = 3.01
  10. Sales ($mil) 12/2011 = 87597
  11. Sales ($mil) 12/2010 = 93249
  12. Sales ($mil) 12/2009 = 98636
  13. Annual EPS before NRI 12/2007 = 2.38
  14. Annual EPS before NRI 12/2008 = 0.75
  15. Annual EPS before NRI 12/2009 = 1.81
  16. Annual EPS before NRI 12/2010 = 2.26
  17. Annual EPS before NRI 12/2011 = 2.82

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Dividend history

  1. Dividend Yield = 2.7%
  2. Dividend Yield 5 Year Average = 2.40
  3. Dividend 5 year Growth = - 7.31%

Dividend sustainability

  1. Payout Ratio = 0.20
  2. Payout Ratio 5 Year Average = 0.41

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 10.09
  2. 5 Year History EPS Growth 12/2011 = 5.96
  3. ROE 5 Year Average = 12.58
  4. Return on Investment = 5.98
  5. Current Ratio = 0.9
  6. Current Ratio 5 Year Average = 0.97
  7. Quick Ratio = 0.85
  8. Interest Coverage = 5.00
  9. Retention rate = 80%

Company: Armour Residential REIT (NYSE:ARR)

Brief Overview

  1. Percentage Held by Insiders = 0.59
  2. Relative Strength 52 weeks = 56
  3. Cash Flow 5-year Average = 0.02
  4. Profit Margin = 78%
  5. Operating Margin = 78%
  6. Quarterly Revenue Growth = 601%
  7. Quarterly Earnings Growth = 658%
  8. Operating Cash Flow = 142M
  9. Beta = 0.42
  10. Short Percentage of Float = 8.3%

Growth

  1. Net Income ($mil) 12/2011 = -9
  2. Net Income ($mil) 12/2010 = 7
  3. Net Income ($mil) 12/2009 = -2
  4. Net Income Reported Quarterly ($mil) = 24
  5. EBITDA ($mil) 12/2011 = 25
  6. EBITDA ($mil) 12/2010 = 10
  7. EBITDA ($mil) 12/2009 = -2
  8. Cash Flow ($/share) 12/2011 = 0.27
  9. Cash Flow ($/share) 12/2010 = 0.85
  10. Cash Flow ($/share) 12/2009 = -0.49
  11. Sales ($mil) 12/2011 = 118
  12. Sales ($mil) 12/2010 = 8
  13. Sales ($mil) 12/2009 = 0
  14. Annual EPS before NRI 12/2010 = 1.12
  15. Annual EPS before NRI 12/2011 = -0.15

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Dividend history

  1. Dividend Yield = 17.20

Dividend sustainability

Payout Ratio = 3.63

Performance

  1. ROE 5 Year Average = 0.87
  2. Return on Investment = -1.32
  3. Current Ratio = 1.16
  4. Current Ratio 5 Year Average = 0.79
  5. Quick Ratio = 1.16
  6. Cash Ratio = 1.09
  7. Interest Coverage Quarterly = N/A

Suggested strategy

Consider waiting for a test of 6.50 before jumping into this play. On the other hand, if you prefer not to wait, consider selling puts at strikes you would not mind owning the stock at. A weekly close above 7.50 will be a bullish development and should result in a test of 8.50 plus ranges.

Company: Sanofi-Aventis (NYSE:SNY)

Brief Overview

  1. Profit Margin = 17.6%
  2. Operating Margin = 21%
  3. Quarterly Revenue Growth = 9.10%
  4. Quarterly Earnings Growth = 50%
  5. Long term debt to equity = 0.22
  6. 5 year sales growth rate = 2.61%
  7. 5 year capital spending rate = 52.4%
  8. Beta = 1.05

Growth

  1. Net Income ($mil) 12/2011 = 8265
  2. Net Income ($mil) 12/2010 = 7597
  3. Net Income ($mil) 12/2009 = 7937
  4. EBITDA ($mil) 12/2011 = 15143
  5. EBITDA ($mil) 12/2010 = 14246
  6. EBITDA ($mil) 12/2009 = 15448
  7. Cash Flow ($/share) 12/2011 = 7.35
  8. Cash Flow ($/share) 12/2010 = 7.39
  9. Cash Flow ($/share) 12/2009 = 7.07
  10. Sales ($mil) 12/2011 = 45972
  11. Sales ($mil) 12/2010 = 41395
  12. Sales ($mil) 12/2009 = 40201
  13. Annual EPS before NRI 12/2007 = 3.64
  14. Annual EPS before NRI 12/2008 = 3.98
  15. Annual EPS before NRI 12/2009 = 4.45
  16. Annual EPS before NRI 12/2010 = 4.81
  17. Annual EPS before NRI 12/2011 = 4.36

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Dividend history

  1. Dividend Yield = 4.70
  2. Dividend Yield 5 Year Average = 3.70
  3. Dividend 5 year Growth = 8.53

Dividend sustainability

  1. Payout Ratio = 0.48
  2. Payout Ratio 5 Year Average = 0.27

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 1.9
  2. ROE 5 Year Average = 16.36
  3. Return on Investment = 11.19
  4. Debt/Total Cap 5 Year Average = 12.09
  5. Current Ratio = 1.50
  6. Current Ratio 5 Year Average = 1.58
  7. Quick Ratio = 0.9
  8. Cash Ratio = 0.5
  9. Interest Coverage =12.10
  10. Retention rate = 52%

Company : Petrobras (NYSE:PBR)

Brief Overview

  1. Relative Strength 52 weeks = 23
  2. Cash Flow 5-year Average = 7.05
  3. Profit Margin = 12.18%
  4. Operating Margin = 17.06%
  5. Quarterly Revenue Growth = 14.7%
  6. Quarterly Earnings Growth = -20.9%
  7. Long term debt to equity = 0.43
  8. 5 year sales growth rate = 11.94%
  9. 5 year capital spending rate = 21%
  10. Operating Cash Flow = 31.81B
  11. Beta = 1.71

Growth

  1. Net Income ($mil) 12/2011 = 20121
  2. Net Income ($mil) 12/2010 = 20055
  3. Net Income ($mil) 12/2009 = 15308
  4. Net Income Reported Quarterly ($mil) = 5212
  5. EBITDA ($mil) 12/2011 = 37259
  6. EBITDA ($mil) 12/2010 = 35582
  7. EBITDA ($mil) 12/2009 = 29409
  8. Cash Flow ($/share) 12/2011 = 8.03
  9. Cash Flow ($/share) 12/2010 = 7.63
  10. Cash Flow ($/share) 12/2009 = 8.61
  11. Sales ($mil) 12/2011 = 141798
  12. Sales ($mil) 12/2010 = 121779
  13. Sales ($mil) 12/2009 = 92817
  14. Annual EPS before NRI 12/2007 = 3
  15. Annual EPS before NRI 12/2008 = 4.32
  16. Annual EPS before NRI 12/2009 = 3.36
  17. Annual EPS before NRI 12/2010 = 4.08
  18. Annual EPS before NRI 12/2011 = 2.96

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Dividend history

  1. Dividend Yield = 1.4
  2. Dividend Yield 5 Year Average = 0.46
  3. Dividend 5 year Growth = 6.27

Dividend sustainability

  1. Payout Ratio = 0.37
  2. Payout Ratio 5 Year Average 12/2011 = 0.05

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 5.97
  2. ROE 5 Year Average = 22.04
  3. Current Ratio = 1.90
  4. Current Ratio 5 Year Average = 1.48
  5. Quick Ratio = 1.50
  6. Cash Ratio = 0.85
  7. Interest Coverage = 17.50

Company: Kraft Foods Inc (KFT)

Basic overview

  1. Percentage Held by Insiders = 0.08
  2. Short ratio = 1.4%
  3. Five year sales growth rate= 8.85%
  4. Long term debt to equity ratio = 0.63
  5. Relative Strength 52 weeks = 79
  6. Dividend 5-year Growth = 2.07
  7. Cash Flow 5-year Average = 2.61
  8. EPS 5 year growth rate = -2.39%
  9. Capital spending 5 year growth rate = 32.91

Growth

  1. Net Income ($mil) 12/2011 = 3527
  2. Net Income ($mil) 12/2010 = 4114
  3. Net Income ($mil) 12/2009 = 3021
  4. Net Income Reported Quarterly ($mil) = 813
  5. EBITDA ($mil) 12/2011 = 8142
  6. EBITDA ($mil) 12/2010 = 7106
  7. EBITDA ($mil) 12/2009 = 6114
  8. Cash Flow ($/share) 12/2011 = 3.14
  9. Cash Flow ($/share) 12/2010 = 2.81
  10. Cash Flow ($/share) 12/2009 = 2.66
  11. Sales ($mil) 12/2011 = 54365
  12. Sales ($mil) 12/2010 = 49207
  13. Sales ($mil) 12/2009 = 40386
  14. Annual EPS before NRI 12/2007 = 1.82
  15. Annual EPS before NRI 12/2008 = 1.81
  16. Annual EPS before NRI 12/2009 = 2.02
  17. Annual EPS before NRI 12/2010 = 2.02
  18. Annual EPS before NRI 12/2011 = 2.29

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Dividend history

  1. Dividend Yield = 3.00
  2. Dividend Yield 5 Year Average = 3.70
  3. Dividend 5 year Growth = 3.58

Dividend sustainability

  1. Payout Ratio = 0.58
  2. Payout Ratio 5 Year Average = 0.57

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 8
  2. 5 Year History EPS Growth = 4.35
  3. ROE 5 Year Average = 10.91
  4. Current Ratio = 0.90
  5. Current Ratio 5 Year Average = 0.97
  6. Quick Ratio = 0.50
  7. Cash Ratio = 0.22
  8. Interest Coverage = 3.70

Conclusion

The markets are still in a corrective phase and there is a decent chance that this stock could test its recent lows again before trending higher. In general, the markets should trend higher into the third quarter. Investors looking for other ideas might find this article to be of interest: Apache: A Great Low Risk Way To Open Up A Second Income stream.

Note: 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.

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

Disclaimer: It is imperative that you do your due diligence and then determine if the above plays meets with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware