A Diverse Array Of Dividend Plays To Consider

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 |  Includes: ACIIQ, DUK, FCX, GLW, NS
by: Tactical Investor

Five candidates based on the following criteria have been picked and 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.

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.

Price to free cash flow is obtained by dividing the share price by free cash flow per share. Higher ratios are associated with more expensive companies and vice versa. Lower ratios are generally more attractive. If a company generated $400 million in cash flow and then spent $100 million on capital expenditure, then its free cash flow is $300 million. If the share price is $100 and the free cash flow per share is $5, then the company trades at 20 times-free cash flow. This ratio is also useful because it can be used as a comparison to the average within the industry. This gives you an idea of how the company you are interested in holds up to the other companies within the industry.

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.

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.

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.

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.

Company: Duke Energy Corp (DUK)

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Basic Key ratios

  1. Long term debt to equity = 0.84
  2. 5 year sales growth rate = 0.93
  3. Relative Strength 52 weeks = 82
  4. Cash Flow 5-year Average = 2.85
  5. Quarterly revenue growth = -0.9%
  6. Quarterly earnings growth = -42%
  7. Beta = 01.9
  8. 52 week change = 20.68%
  9. Levered free cash flow = - $1.48B
  10. Operating cash flow = $3.5B

Growth

  1. Net Income ($mil) 12/2011 = 1706
  2. Net Income ($mil) 12/2010 = 1320
  3. Net Income ($mil) 12/2009 = 1075
  4. Net Income Reported Quarterly ($mil) = 295
  5. EBITDA ($mil) 12/2011 = 5350
  6. EBITDA ($mil) 12/2010 = 5044
  7. EBITDA ($mil) 12/2009 = 4428
  8. Cash Flow ($/share) 12/2011 = 2.98
  9. Cash Flow ($/share) 12/2010 = 2.93
  10. Cash Flow ($/share) 12/2009 = 2.63
  11. Sales ($mil) 12/2011 = 14529
  12. Sales ($mil) 12/2010 = 14272
  13. Sales ($mil) 12/2009 = 12731
  14. Annual EPS before NRI 12/2007 = 1.25
  15. Annual EPS before NRI 12/2008 = 1.21
  16. Annual EPS before NRI 12/2009 = 1.22
  17. Annual EPS before NRI 12/2010 = 1.43
  18. Annual EPS before NRI 12/2011 = 1.46

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Dividend history

  1. Dividend Yield = 4.5
  2. Dividend Yield 5 Year Average = 5.4
  3. Dividend 5 year Growth = 18.8%

Dividend sustainability

  1. Payout Ratio = 0.89
  2. Payout Ratio 5 Year Average = 0.7

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 4.67
  2. 5 Year History EPS Growth = 2.08
  3. ROE 5 Year Average = 8.53
  4. Current Ratio = 1.40
  5. Current Ratio 5 Year Average = 1.26
  6. Quick Ratio = 0.7
  7. Cash Ratio = 0.61
  8. Interest Coverage = 3.5

Company: Freeport-McMoRan Copper & Gold Inc. (FCX)

Basic overview

  1. Levered free cash flow = $2.15 billion
  2. Quarterly earnings growth = - 23%
  3. Quarterly revenue growth = - 48%
  4. Beta = 2.29
  5. Operating margins= 35%
  6. Profit margins= 17%
  7. Operating cash flow = 5.06 billion
  8. Long term debt to equity ratio = 0.35
  9. Cash Flow 5 -year Average = 5.17
  10. 5 year sales growth rate = 6.55
  11. Operating cash flow = 4.56B
  12. 5 year capital spending rate = 11.8%

Growth

  1. Net Income ($mil) 12/2011 = 4560
  2. Net Income ($mil) 12/2010 = 4336
  3. Net Income ($mil) 12/2009 = 2749
  4. Net Income Reported Quarterly ($mil) = 764
  5. EBITDA ($mil) 12/2011 = 10152
  6. EBITDA ($mil) 12/2010 = 10010
  7. EBITDA ($mil) 12/2009 = 7416
  8. Cash Flow ($/share) 12/2011 = 5.95
  9. Cash Flow ($/share) 12/2010 = 5.77
  10. Cash Flow ($/share) 12/2009 = 4.4
  11. Sales ($mil) 12/2011 = 20880
  12. Sales ($mil) 12/2010 = 18982
  13. Sales ($mil) 12/2009 = 15040
  14. Annual EPS before NRI 12/2008 = 3.43
  15. Annual EPS before NRI 12/2009 = 2.96
  16. Annual EPS before NRI 12/2010 = 4.64
  17. Annual EPS before NRI 12/2011 = 4.84

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Dividend history

  1. Dividend Yield = 3.9
  2. Dividend Yield 5 Year Average = 3.10
  3. Dividend 5 year Growth = 5.07

Dividend sustainability

  1. Payout Ratio = 0.32
  2. Payout Ratio 5 Year Average = 0.11

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 6.9
  2. ROE 5 Year Average = 32.34
  3. Return on Investment = 22
  4. Debt/Total Cap 5 Year Average = 31.21
  5. Current Ratio = 3.5
  6. Current Ratio 5 Year Average = 2.33
  7. Quick Ratio = 2.00
  8. Cash Ratio = 1.71
  9. Interest Coverage = 24.2
  10. Retention rate = 68%

Company: Arch Coal Inc (ACI)

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Basic overview

  1. Percentage held by Institutions = 79%
  2. Operating margin= 9.44
  3. 5 year sales growth rate = 11.8%
  4. 52 week change = -79%
  5. 5 year EPS growth rate = -18.4%
  6. 5 year Capital spending growth rate = 26.71%
  7. Quarterly revenue growth rate = 19.10%
  8. Quarterly earnings growth rate = -9%
  9. Operating cash flow = $ 611
  10. Levered free cash flow = - $35M
  11. Beta = 2.26

Growth

  1. Net Income ($mil) 12/2011 = 142
  2. Net Income ($mil) 12/2010 = 159
  3. Net Income ($mil) 12/2009 = 42
  4. EBITDA ($mil) 12/2011 = 824
  5. EBITDA ($mil) 12/2010 = 731
  6. EBITDA ($mil) 12/2009 = 459
  7. Net Income Reported Quarterly ($mil) = 1
  8. Cash Flow ($/share) 12/2011 = 3.14
  9. Cash Flow ($/share) 12/2010 = 3.67
  10. Cash Flow ($/share) 12/2009 = 2.41
  11. Sales ($mil) 12/2011 = 4286
  12. Sales ($mil) 12/2010 = 3186
  13. Sales ($mil) 12/2009 = 2576
  14. Annual EPS before NRI 12/2007 = 1.21
  15. Annual EPS before NRI 12/2008 = 2.45
  16. Annual EPS before NRI 12/2009 = 0.42
  17. Annual EPS before NRI 12/2010 = 1.14
  18. Annual EPS before NRI 12/2011 = 1.07

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Dividend history

  1. Dividend Yield = 2.3
  2. Dividend Yield 5 Year Average = 1.7
  3. Dividend 5 year Growth = 11.6

Dividend sustainability

  1. Payout Ratio = 0.57
  2. Payout Ratio 5 Year Average = 0.4

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 11.8
  2. 5 Year History EPS Growth = -11.8
  3. ROE 5 Year Average = 10.76
  4. Current Ratio = 1.55
  5. Current Ratio 5 Year Average = 1.27
  6. Quick Ratio = 0.79
  7. Cash Ratio = 0.33
  8. Interest Coverage Quarterly = 0.74

Notes

Only individuals willing to take a risk should consider this play. The coal sector has taken a beating and overseas demand for this product is still robust. The short percentage of float which stood at 19% on the 10th of the month has now soared to 31%. This makes it a great candidate for a short squeeze. A weekly close above 9.00 will turn the outlook to bullish.

Company: Corning Inc (GLW)

Brief Overview

  1. Percentage Held by Insiders = 0.35
  2. Quarterly Revenue Growth = -4.2%
  3. Quarterly Earnings Growth = - 38%
  4. Operating Cash Flow = 3.4B
  5. Beta = 1.6
  6. Sales vs 1 year ago = 19.00
  7. Levered free cash flow = -$517 million
  8. Long term debt to equity = 0.15
  9. Profit Margin = 28%
  10. Operating Margin = 20%
  11. 5 year sales growth rate = 6.8%

Growth

  1. Net Income ($mil) 12/2011 = 2805
  2. Net Income ($mil) 12/2010 = 3558
  3. Net Income ($mil) 12/2009 = 2008
  4. EBITDA ($mil) 12/2011 = 4259
  5. EBITDA ($mil) 12/2010 = 4808
  6. EBITDA ($mil) 12/2009 = 2808
  7. Cash Flow ($/share) 12/2011 = 2.38
  8. Cash Flow ($/share) 12/2010 = 2.64
  9. Cash Flow ($/share) 12/2009 = 1.87
  10. Sales ($mil) 12/2011 = 7890
  11. Sales ($mil) 12/2010 = 6632
  12. Sales ($mil) 12/2009 = 5395
  13. Annual EPS before NRI 12/2007 = 1.41
  14. Annual EPS before NRI 12/2008 = 1.57
  15. Annual EPS before NRI 12/2009 = 1.35
  16. Annual EPS before NRI 12/2010 = 2.07
  17. Annual EPS before NRI 12/2011 = 1.76

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Dividend history

  1. Dividend Yield = 2.7
  2. Dividend Yield 5 Year Average = 1.5
  3. Dividend 5 year Growth = 4.96

Dividend sustainability

  1. Payout Ratio = 0.19
  2. Payout Ratio 5 Year Average = 0.12

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 8.5
  2. 5 Year History EPS Growth = 8.43
  3. ROE 5 Year Average = 18.76
  4. Current Ratio = 5.5
  5. Current Ratio 5 Year Average = 3.58
  6. Quick Ratio = 3.67
  7. Cash Ratio = 3.16
  8. Retention rate = 81%
  9. Interest Coverage = 36.7

Company: Nustar Energy (NS)

Brief Overview

  1. Percentage Held by Insiders = 2.29
  2. Relative Strength 52 weeks = 41
  3. Cash Flow 5-year Average = 5.74
  4. Profit Margin = 3.1%
  5. Operating Margin = 4.33%
  6. Quarterly Revenue Growth = 40.6%
  7. Quarterly Earnings Growth = -7.5%
  8. Operating Cash Flow = 250.65M
  9. Beta = 0.77
  10. Levered Free Cash Flow = -123.01M
  11. Percentage Held by Institutions = 29.7%
  12. Short Percentage of Float = 1.3%
  13. 52 week change = - 16.28%

Growth

  1. Net Income ($mil) 12/2011 = 222
  2. Net Income ($mil) 12/2010 = 239
  3. Net Income ($mil) 12/2009 = 225
  4. Net Income Reported Quarterly ($mil) = 26
  5. EBITDA ($mil) 12/2011 = 478
  6. EBITDA ($mil) 12/2010 = 483
  7. EBITDA ($mil) 12/2009 = 461
  8. Cash Flow ($/share) 12/2011 = 5.57
  9. Cash Flow ($/share) 12/2010 = 5.64
  10. Cash Flow ($/share) 12/2009 = 5.82
  11. Sales ($mil) 12/2011 = 6575
  12. Sales ($mil) 12/2010 = 4403
  13. Sales ($mil) 12/2009 = 3856
  14. Annual EPS before NRI 12/2007 = 2.58
  15. Annual EPS before NRI 12/2008 = 4.07
  16. Annual EPS before NRI 12/2009 = 3.03
  17. Annual EPS before NRI 12/2010 = 2.89
  18. Annual EPS before NRI 12/2011 = 2.97

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Dividend history

  1. Dividend Yield = 8.3
  2. Dividend Yield 5 Year Average = 7.80
  3. Dividend 5 year Growth = 3.86

Dividend sustainability

  1. Payout Ratio = 1.7
  2. Payout Ratio 5 Year Average 12/2011 = 1.36

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 6.45
  2. ROE 5 Year Average 12/2011 = 8.87
  3. Current Ratio = 0.92
  4. Current Ratio 5 Year Average = 1.77
  5. Quick Ratio = 0.65
  6. Cash Ratio = 0.07
  7. Interest Coverage Quarterly = 2.33

Important facts investors should be aware in regards to investing in MLPs

Payout ratios are not that important when it comes to MLPs, which generally pay a majority of their cash flow as distributions. Payout ratios are calculated by dividing the dividend/distribution rate by the net income per share, and this is why the payout ratio for MLPs is often higher than 100%. The more important ratio to focus on is the cash flow per unit. If one focuses on the cash flow per unit, one will see that in most cases, it exceeds the distribution declared per unit.

MLPs are not taxed like regular corporations because they pay out a large portion of their income to partners (as an investor you are basically a partner and are allocated units instead of shares) usually through quarterly distributions. The burden is thus shifted to the partners who are taxed at their ordinary income rates. As ordinary income tax rates of investors are typically lower than the income tax assessed on corporations, this arrangement is advantageous to the MLPs and generally most investors.

MLPs issue a Schedule K-1 to their investors. Unrelated business income (UBI) above $1,000 is taxable in an IRA. This information will appear Box 20 in the schedule K-1. UBI is typically a very small number usually well below $1000 and in some cases negative. If the MLP pays out distributions in excess of the income it generates, the distribution is classified as a "return of capital" and tax deferred until you sell your units. For more information, on this topic investors can visit the National Association of Publicly Traded Partnerships.

Conclusion

In genera 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: Cisco Bulls: 4-1 Leverage For Almost Free.

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. Earnings 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.

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