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Four candidates based on the following criteria have been picked and are examined thoroughly below. 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.

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.

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.

Retention ratio 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.

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.

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. 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 - ArcelorMittal Bulls: Extra 14% In 7 Months Or A Lower entry price.

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.

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.

Company: CenturyLink Inc (NYSE:CTL)

Levered Free Cash Flow = $2.8B

Basic overview

  1. Percentage Held by Insiders = 0.28
  2. Quarterly revenue growth = 171%
  3. Quarterly earnings growth = - 5.2%
  4. Relative Strength 52 weeks = 57
  5. Short interest ratio = 4.7%
  6. Beta = 0.6
  7. Cash Flow 5 -year Average = 7.02
  8. Operating margin = 14.7%
  9. Operating cash flow = 5.11 Billion

Growth

  1. Net Income ($mil) 12/2011 = 573
  2. Net Income ($mil) 12/2010 = 948
  3. Net Income ($mil) 12/2009 = 647
  4. EBITDA ($mil) 12/2011 = 6046
  5. EBITDA ($mil) 12/2010 = 3509
  6. EBITDA ($mil) 12/2009 = 2155
  7. Cash Flow ($/share) 12/2011 = 8.43
  8. Cash Flow ($/share) 12/2010 = 8.12
  9. Cash Flow ($/share) 12/2009 = 5.7
  10. Sales ($mil) 12/2011 = 15351
  11. Sales ($mil) 12/2010 = 7042
  12. Sales ($mil) 12/2009 = 4974
  13. Annual EPS before NRI 12/2007 = 3.16
  14. Annual EPS before NRI 12/2008 = 3.37
  15. Annual EPS before NRI 12/2009 = 3.6
  16. Annual EPS before NRI 12/2010 = 3.39
  17. Annual EPS before NRI 12/2011 = 2.21

Dividend history

  1. Dividend Yield = 7.6
  2. Dividend Yield 5 Year Average = 6.5
  3. Dividend 5 year Growth = 66%

Dividend sustainability

  1. Payout Ratio = 3.33
  2. Payout Ratio 5 Year Average = 0.68
  3. Change in Payout Ratio = 0.59

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 4.09
  2. ROE 5 Year Average = 10.29
  3. Return on Investment = 3.26
  4. Debt/Total Cap 5 Year Average = 46.13
  5. Current Ratio = 0.9
  6. Current Ratio 5 Year Average = 0.76
  7. Quick Ratio = 0.6
  8. Cash Ratio = 0.38
  9. Interest Coverage Quarterly = 1.7
  10. Five year sales growth rate = 46%

Company: Vale SA (NYSE:VALE)

Levered Free Cash Flow = -423.03M

Brief Overview

  1. Relative Strength 52 weeks = 25
  2. Cash Flow 5-year Average = 4.11
  3. Profit Margin = 32.99%
  4. Operating Margin = 46.79%
  5. Quarterly Revenue Growth = -11%
  6. Quarterly Earnings Growth = -40.5%
  7. Operating Cash Flow = 18.39B
  8. Beta = 1.75

Growth

  1. Net Income ($mil) 12/2011 = 22885
  2. Net Income ($mil) 12/2010 = 17453
  3. Net Income ($mil) 12/2009 = 5456
  4. Net Income Reported Quarterly ($mil) = 3827
  5. EBITDA ($mil) 12/2011 = 30921
  6. EBITDA ($mil) 12/2010 = 23574
  7. EBITDA ($mil) 12/2009 = 9845
  8. Cash Flow ($/share) 12/2011 = 8.19
  9. Cash Flow ($/share) 12/2010 = 6.35
  10. Cash Flow ($/share) 12/2009 = 1.67
  11. Sales ($mil) 12/2011 = 58990
  12. Sales ($mil) 12/2010 = 45293
  13. Sales ($mil) 12/2009 = 23311
  14. Annual EPS before NRI 12/2007 = 2.42
  15. Annual EPS before NRI 12/2008 = 2.71
  16. Annual EPS before NRI 12/2009 = 1
  17. Annual EPS before NRI 12/2010 = 3.25
  18. Annual EPS before NRI 12/2011 = 4.16

Dividend history

  1. Dividend Yield = 6.00
  2. Dividend Yield 5 Year Average = 1.5
  3. Dividend 5 year Growth = 33.7

Dividend sustainability

  1. Payout Ratio = 0.38
  2. Payout Ratio 5 Year Average = 0.05

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 1
  2. ROE 5 Year Average 12/2012 = 32.76
  3. Current Ratio = 2.10
  4. Current Ratio 5 Year Average = 2.24
  5. Quick Ratio = 1.40
  6. Cash Ratio = 0.75
  7. Interest Coverage = 10.10
  8. Retention rate = 62%
  9. Five year sales growth rate = 15.66

Company: Schlumberger Lt (NYSE:SLB)

Basic overview

  1. Levered free cash flow = $1.09 billion
  2. Relative Strength 52 weeks = 41
  3. Cash Flow 5-year Average = 5.34
  4. Dividend Yield 5-Year Average = 1.25
  5. Percentage Held by Insiders = 0.21
  6. Five year sales growth rate = 11.40%
  7. Long term debt to equity ratio = 0.26
  8. Short ratio = 1.8%
  9. Quarterly revenue growth = 21.7%
  10. Quarterly earnings growth = 37.8%

Growth

  1. Net Income ($mil) 12/2011 = 4997
  2. Net Income ($mil) 12/2010 = 4267
  3. Net Income ($mil) 12/2009 = 3134
  4. Net Income Reported Quarterly ($mil) = 1301
  5. EBITDA ($mil) 12/2011 = 9917
  6. EBITDA ($mil) 12/2010 = 8122
  7. EBITDA ($mil) 12/2009 = 6631
  8. Cash Flow ($/share) 12/2011 = 6.15
  9. Cash Flow ($/share) 12/2010 = 4.66
  10. Cash Flow ($/share) 12/2009 = 4.86
  11. Sales ($mil) 12/2011 = 39540
  12. Sales ($mil) 12/2010 = 27447
  13. Sales ($mil) 12/2009 = 22702
  14. Annual EPS before NRI 12/2009 = 2.78
  15. Annual EPS before NRI 12/2010 = 2.86
  16. Annual EPS before NRI 12/2011 = 3.66

Dividend history

  1. Dividend Yield = 1.8
  2. Dividend Yield 5 Year Average = 1.3
  3. Dividend 5 year Growth = 11.77

Dividend sustainability

  1. Payout Ratio = 0.26
  2. Payout Ratio 5 Year Average = 0.25

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 13
  2. 5 Year History EPS Growth = -6.79
  3. ROE 5 Year Average = 24.42
  4. Return on Investment = 13.37
  5. Current Ratio = 2.00
  6. Current Ratio 5 Year Average = 1.73
  7. Quick Ratio = 1.3
  8. Cash Ratio = 0.6
  9. Interest Coverage = 23
  10. Retention rate = 74%

Company: Halliburton Co (NYSE:HAL)

Levered free cash flow = $785 million

Basic Key ratios

  1. Short percentage of float= 2.10
  2. Operating margin = 187%
  3. Profit margin = 11.9%
  4. Cash Flow 5-year Average = 3.29
  5. Beta = 1.69
  6. Quarterly revenue growth rate = 30%
  7. Quarterly earnings growth rate = 22.7%
  8. Long term debt to equity = 0.35

Growth

  1. Net Income ($mil) 12/2011 = 2839
  2. Net Income ($mil) 12/2010 = 1835
  3. Net Income ($mil) 12/2009 = 1145
  4. Net Income Reported Quarterly ($mil) = 627
  5. EBITDA ($mil) 12/2011 = 6071
  6. EBITDA ($mil) 12/2010 = 4071
  7. EBITDA ($mil) 12/2009 = 2898
  8. Cash Flow ($/share) 12/2011 = 4.84
  9. Cash Flow ($/share) 12/2010 = 3.3
  10. Cash Flow ($/share) 12/2009 = 2.38
  11. Sales ($mil) 12/2011 = 24829
  12. Sales ($mil) 12/2010 = 17973
  13. Sales ($mil) 12/2009 = 14675
  14. Annual EPS before NRI 12/2007 = 2.66
  15. Annual EPS before NRI 12/2008 = 2.94
  16. Annual EPS before NRI 12/2009 = 1.35
  17. Annual EPS before NRI 12/2010 = 2.06
  18. Annual EPS before NRI 12/2011 = 3.36

Dividend history

  1. Dividend Yield = 1.3
  2. Dividend Yield 5 Year Average = 1.2
  3. Five year dividend growth rate = 2.45

Dividend sustainability

  1. Payout Ratio = 0.11
  2. Payout Ratio 5 Year Average = 0.16

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 13
  2. 5 Year History EPS Growth = 0.96
  3. ROE 5 Year Average = 26.22
  4. Current Ratio = 2.8
  5. Current Ratio 5 Year Average = 3.1
  6. Quick Ratio = 1.9
  7. Cash Ratio = 0.95
  8. Interest Coverage = 17.6
  9. Retention rate = 89%

Conclusion

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. If the stock trades below the strike price the shares could be assigned to your account. Your final cost will be below the strike price, as you get to subtract the premium you received from the total cost. If the stock does not trade below the strike price you get to walk away with the premium. Investors looking for other ideas might find this article to be of interest - Seadrill: Grab An Extra 13.3% In 7 Months Or A Lower entry price.

Sources: 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.

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.

Source: 4 Dividend Plays For Your Portfolio With Yields As High As 7.6%