In the learning to fish series, investors are provided with suggested guidelines for choosing a potential candidate and one candidate is selected as our play of choice. We provide reasons for this choice and in doing so hope to impart some understanding to those who are new to the field of dividend investing.
The suggested guidelines can be accessed here Our suggested guidelines when searching for new investment ideas. These are not absolute rules; they are just suggestions and there are always exceptions to the rule. The goal is to try to satisfy as many of them as possible.
Reasons to be bullish on AFLAC Inc (AFL):
- A strong levered free cash flow of $3.69 billion
- A five-year sales growth rate of 8.96%
- A decent yield of 3.2%
- A strong five year dividend growth rate of 13%
- A low payout ratio of 25%
- Net income increases from $1.4 billion in 2009 to $1.96 billion in 2011
- Cash flow from operating activities increased from $61.7 billion in 2009 to $10.8 billion in 2011
- Cash flow per share increased from $4.87 in 2009 to $6.37 in 2011
- Annual EPS before NRI increased from $3.27 in 2007 to $6.33 in 2011
- Operating margins of 16%
- A good quarterly revenue growth rate of 20.3%
- A very strong quarterly earnings growth rate of 101%
- A high beta of 1.81 makes it a good candidate for covered writes or to sell puts if one is bullish on the stock
- A very strong free cash flow yield of 63.8%
- A great interest coverage ratio of 18.3
- A retention rate of 75%
- A good ROE of 19.14%
- $100K invested for 10 years would have grown to $158K. If the dividends were reinvested the rate of return would be much higher
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Interesting companies
For investors looking for other ideas detailed data has been provided on two additional companies. Our latest article could also provide some food for thought: Philip Morris: 7% Extra In Addition To The Dividend.
Company: MFA Financial (MFA)
Brief overview
- EPS 5 year growth rate = 77%
- Short ratio = 4.4%
- Quarterly earnings growth = 3.00%
- Quarterly revenue growth = 2.2%
- Profit Margins = 90.9%
- Operating margins = 90.8%
- Beta = 0.97
- Operating cash flow = $352M
Growth
- Net Income ($mil) 12/2011 = 316
- Net Income ($mil) 12/2010 = 270
- Net Income ($mil) 12/2009 = 268
- EBITDA ($mil) 12/2011 = 507
- EBITDA ($mil) 12/2010 = 456
- EBITDA ($mil) 12/2009 = 522
- Cash Flow ($/share) 12/2011 = 1.07
- Cash Flow ($/share) 12/2010 = 1.01
- Cash Flow ($/share) 12/2009 = 1
- Sales ($mil) 12/2011 = 508
- Sales ($mil) 12/2010 = 453
- Sales ($mil) 12/2009 = 539
- Annual EPS before NRI 12/2007 = 0.24
- Annual EPS before NRI 12/2008 = 0.21
- Annual EPS before NRI 12/2009 = 0.94
- Annual EPS before NRI 12/2010 = 0.86
- Annual EPS before NRI 12/2011 = 0.97
Dividend history
- Dividend Yield = 12.00
- Dividend Yield 5 Year Average =12.20
- Dividend 5 year Growth = 32
Dividend sustainability
- Payout Ratio = 1.16
- Payout Ratio 5 Year Average = 2.48
Performance
- Next 3-5 Year Estimate EPS Growth rate = 4
- ROE 5 Year Average = 8.31
- Current Ratio = 9.83
- Current Ratio 5 Year Average = 21.76
- Quick Ratio = 9.83
- Cash Ratio = 8.9
- Interest Coverage = 3.10
Company: Starbucks Corp (SBUX)
Levered free cash = $770 Million
Brief overview
- EPS 5 year growth rate = 16.23%
- Short ratio = 0.8%
- Quarterly earnings growth = 18.5%
- Quarterly revenue growth = 14%
- Profit Margins = 10.5%
- Operating margins = 12%
- Beta = 1.10
- Operating cash flow = $1.52B
- Levered Free cash flow = $770 M
- 5 year sales growth rate = 5.64
- 5 year capital spending rate = -14%
- Long term debt to equity ratio = 0.11
Growth
- Net Income ($mil) 12/2011 = 1246
- Net Income ($mil) 12/2010 = 946
- Net Income ($mil) 12/2009 = 391
- EBITDA ($mil) 12/2011 = 2394
- EBITDA ($mil) 12/2010 = 2011
- EBITDA ($mil) 12/2009 = 1162
- Cash Flow ($/share) 12/2011 = 2.3
- Cash Flow ($/share) 12/2010 = 2.05
- Cash Flow ($/share) 12/2009 = 1.57
- Sales ($mil) 12/2011 = 11700
- Sales ($mil) 12/2010 = 10707
- Sales ($mil) 12/2009 = 9775
- Annual EPS before NRI 12/2007 = 0.87
- Annual EPS before NRI 12/2008 = 0.71
- Annual EPS before NRI 12/2009 = 0.8
- Annual EPS before NRI 12/2010 = 1.28
- Annual EPS before NRI 12/2011 = 1.52
Dividend history
- Dividend Yield = 1.3
Dividend sustainability
- Payout Ratio = 0.35
- Payout Ratio 5 Year Average = 0.15
Performance
- Next 3-5 Year Estimate EPS Growth rate = 17.78
- 5 Year History EPS Growth = 20.08
- ROE 5 Year Average = 25.4
- Return on Investment = 24.05
- Current Ratio = 2.20
- Current Ratio 5 Year Average = 1.32
- Quick Ratio = 1.4
- Cash Ratio = 1.18
- Interest Coverage Quarterly = 55
- Retention rate = 65%
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. Investors looking for other ideas might find this article to be of interest: Qualcomm A Dominant Player In The High End Smartpho and Mobile computing sector.
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 dailyfinace.com
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
