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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 the stock warrants further attention. If you find the stock appealing, you can dig deeper and see if meets with your investment criteria. Investors should not base their decision on yield alone. There are many stocks that offer extremely high yields, but their performance over the years has been anything but spectacular. In some cases the total rate of return has been negative for the past 3-5 years. One should look at the robustness of the company, the dividend growth rate, the sustainability of the dividend and finally one should take a look at the company's dividend history. Companies with stellar records will do everything possible to avoid cutting the dividend in order to maintain this record. To help the novice investor we have put out this guide, 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.

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 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.

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: Royal Bank Canada (RY)

Brief Overview

  1. Short Ratio = 19
  2. Relative Strength 52 weeks = 56
  3. Cash Flow 5-year Average = 3.93
  4. Profit Margin = 17.38%
  5. Operating Margin = 33.28%
  6. Quarterly Revenue Growth = 0.3%
  7. Quarterly Earnings Growth = -6.1%
  8. Operating Cash Flow = 4.94B
  9. Beta = 1.36

Growth

  1. Net Income ($mil) 12/2011 = 4920
  2. Net Income ($mil) 12/2010 = 5032
  3. Net Income ($mil) 12/2009 = 3312
  4. Net Income Reported Quarterly ($mil) = 1475
  5. EBITDA ($mil) 12/2011 = 12276
  6. EBITDA ($mil) 12/2010 = 9619
  7. EBITDA ($mil) 12/2009 = 7032
  8. Cash Flow ($/share) 12/2011 = 4.81
  9. Cash Flow ($/share) 12/2010 = 3.98
  10. Cash Flow ($/share) 12/2009 = 3.83
  11. Sales ($mil) 12/2011 = 35115
  12. Sales ($mil) 12/2010 = 35576
  13. Sales ($mil) 12/2009 = 36293
  14. Annual EPS before NRI 12/2007 = 3.82
  15. Annual EPS before NRI 12/2008 = 3.31
  16. Annual EPS before NRI 12/2009 = 3.23
  17. Annual EPS before NRI 12/2010 = 3.5
  18. Annual EPS before NRI 12/2011 = 4.37

Dividend history

  1. Dividend Yield = 4.3
  2. Dividend Yield 5 Year Average 03/2012 = 4.05
  3. Dividend Yield 5 Year Average 12/2011 = 3.98
  4. Annual Dividend 12/2011 = 2.09
  5. Dividend 5 year Growth 03/2012 = 3.74

Dividend sustainability

  1. Payout Ratio 03/2012 = 0.51
  2. Payout Ratio 5 Year Average 03/2012 = 0.52
  3. Payout Ratio 5 Year Average 12/2011 = 0.52

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 10
  2. 5 Year History EPS Growth 03/2012 = 3.02
  3. ROE 5 Year Average 03/2012 = 19
  4. ROE 5 Year Average 12/2011 = 19.35
  5. Return on Investment 03/2012 = 13.2
  6. Debt/Total Cap 5 Year Average 03/2012 = 19.38
  7. Current Ratio 03/2012 = 1.01
  8. Current Ratio 12/2011 = 1.01
  9. Current Ratio 5 Year Average = 0.97
  10. Quick Ratio = 1.03
  11. Cash Ratio = 0.56
  12. Interest Coverage Quarterly = 4.67

Notes

It has a decent payout ratio of 51%, a 3-5 estimated EPS growth rate of 10%, a good interest coverage ratio of 4.67 and year over year growth rate of 7.67% and 8.50% for 2012 and 2013 respectively.

Company: Medtronic (MDT)

Brief Overview

  1. Percentage Held by Insiders = 0.09
  2. Short Ratio = 2.2
  3. Relative Strength 52 weeks = 67
  4. Cash Flow 5-year Average = 3.76
  5. Profit Margin = 22.35%
  6. Operating Margin = 28.65%
  7. Quarterly Revenue Growth = 3.1%
  8. Quarterly Earnings Growth = 27.7%
  9. Operating Cash Flow = 4.47B
  10. Beta = 0.96
  11. Percentage Held by Institutions = 78.6%
  12. Levered Free Cash Flow = 2.64B

Growth

  1. Net Income ($mil) 12/2011 = 3096
  2. Net Income ($mil) 12/2010 = 3099
  3. Net Income Reported Quarterly ($mil) = 991
  4. EBITDA ($mil) 12/2011 = 4917
  5. EBITDA ($mil) 12/2010 = 5129
  6. Cash Flow ($/share) 12/2011 = 4.32
  7. Cash Flow ($/share) 12/2010 = 4.1
  8. Sales ($mil) 12/2011 = 15933
  9. Sales ($mil) 12/2010 = 15817
  10. Annual EPS before NRI 12/2008 = 2.6
  11. Annual EPS before NRI 12/2009 = 2.92
  12. Annual EPS before NRI 12/2010 = 3.22
  13. Annual EPS before NRI 12/2011 = 3.37

Dividend history

  1. Dividend Yield = 2.6
  2. Dividend Yield 5 Year Average 03/2012 = 2.04
  3. Dividend 5 year Growth 03/2012 = 15.62

Dividend sustainability

  1. Payout Ratio = 0.28
  2. Payout Ratio 5 Year Average 03/2012 = 0.26

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 6.99
  2. 5 Year History EPS Growth 03/2012 = 7.91
  3. ROE 5 Year Average 03/2012 = 25.01
  4. Return on Investment 03/2012 = 14.76
  5. Debt/Total Cap 5 Year Average 03/2012 = 32.09
  6. Current Ratio 03/2012 = 1.63
  7. Current Ratio 5 Year Average = 2.18
  8. Quick Ratio = 1.32
  9. Cash Ratio = 0.67
  10. Interest Coverage Quarterly = 23.11
  11. 5 year sales growth = 5.7%
  12. Long term debt to equity ratio = 0.43
  13. 5 year capital spending growth rate = -10.58%
  14. 52 week change = 14.89%
  15. EPS 5 year growth rate = 5.35

Company: TransCanada Corp (TRP)

Brief Overview

  1. Short Ratio = 6.2
  2. Relative Strength 52 weeks = 68
  3. Levered Free Cash Flow = -1.27B
  4. Cash Flow 5-year Average = 3.72
  5. Profit Margin = 16.59%
  6. Operating Margin = 34.86%
  7. Quarterly Revenue Growth = -15 %
  8. Quarterly Earnings Growth = -22%
  9. Operating Cash Flow = 3.66B
  10. Beta = 0.68
  11. Short Percentage of Float = 0.3%

Growth

  1. Net Income ($mil) 12/2011 = 1732
  2. Net Income ($mil) 12/2010 = 1235
  3. Net Income ($mil) 12/2009 = 1215
  4. Net Income Reported Quarterly ($mil) = 359
  5. EBITDA ($mil) 12/2011 = 4862
  6. EBITDA ($mil) 12/2010 = 3768
  7. EBITDA ($mil) 12/2009 = 3748
  8. Cash Flow ($/share) 12/2011 = 4.48
  9. Cash Flow ($/share) 12/2010 = 3.87
  10. Cash Flow ($/share) 12/2009 = 3.61
  11. Sales ($mil) 12/2011 = 9161
  12. Sales ($mil) 12/2010 = 8166
  13. Sales ($mil) 12/2009 = 8496
  14. Annual EPS before NRI 12/2007 = 1.96
  15. Annual EPS before NRI 12/2002 = 2.11
  16. Annual EPS before NRI 12/2009 = 1.92
  17. Annual EPS before NRI 12/2010 = 1.93
  18. Annual EPS before NRI 12/2011 = 2.22

Dividend history

  1. Dividend Yield = 3.8
  2. Dividend Yield 5 Year Average 03/2012 = 4.13
  3. Dividend Yield 5 Year Average 12/2011 = 4.09
  4. Annual Dividend 12/2011 = 1.72
  5. Dividend 5 year Growth 03/2012 = 7.34

Dividend sustainability

  1. Payout Ratio = 0.8
  2. Payout Ratio 5 Year Average 03/2012 = 0.73
  3. Payout Ratio 5 Year Average 12/2011 = 0.73

Performance

  1. Year over year growth rate for 2012 = -6.7%
  2. Year over year growth rate for 2013 = 15.54%
  3. ROE 5 Year Average 03/2012 = 10.01
  4. ROE 5 Year Average 12/2011 = 10.11
  5. Debt/Total Cap 5 Year Average 03/2012 = 54.19
  6. Current Ratio 03/2012 = N/A
  7. Current Ratio 12/2011 = 0.58
  8. Current Ratio 5 Year Average = 0.72
  9. Quick Ratio = 0.55
  10. Cash Ratio = 0.33
  11. Interest Coverage Quarterly = 3.19

Notes

A good long term play but it's a bit overbought right now. Wait for a pullback before jumping in. It has good year over year projected growth rate of 15% for 2013 , a decent yield and net income has been rising steadily for the past 3 years.

Company: Blackstone Group (BX)

Brief Overview

  1. Short Ratio = 2.5
  2. Relative Strength 52 weeks = 41
  3. Cash Flow 5-year Average = 2.7
  4. Profit Margin = - 13.57%
  5. Operating Margin = -4.33%
  6. 5 year sales growth rate = - 12.6%
  7. Sales vs 1 year ago = - 4.3
  8. 5 year capital spending growth rate = 13.18
  9. Quarterly Revenue Growth = -52.6%
  10. EPS vs 1 year ago = 10.9
  11. Beta = 2.13
  12. Percentage Held by Institutions = 24.1%
  13. Short Percentage of Float = 1.8%

Growth

  1. Net Income ($mil) 12/2011 = -168
  2. Net Income ($mil) 12/2010 = -370
  3. Net Income ($mil) 12/2009 = -715
  4. Net Income Reported Quarterly ($mil) = 58
  5. EBITDA ($mil) 12/2011 = 343
  6. EBITDA ($mil) 12/2010 = -319
  7. EBITDA ($mil) 12/2009 = -2120
  8. Cash Flow ($/share) 12/2011 = 3.2
  9. Cash Flow ($/share) 12/2010 = 2.68
  10. Cash Flow ($/share) 12/2009 = 1.82
  11. Sales ($mil) 12/2011 = 3253
  12. Sales ($mil) 12/2010 = 3119
  13. Sales ($mil) 12/2009 = 1774
  14. Annual EPS before NRI 12/2007 = 1.62
  15. Annual EPS before NRI 12/2008 = -1.03
  16. Annual EPS before NRI 12/2009 = 0.63
  17. Annual EPS before NRI 12/2010 = 1.46
  18. Annual EPS before NRI 12/2011 = 1.25

Dividend history

  1. Dividend Yield = 2.9
  2. Dividend Yield 5 Year Average = 7.7
  3. Dividend 5 year Growth 03/2012 = -23.32

Dividend sustainability

  1. Payout Ratio 5 Year Average 03/2012 = 0.89

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 14.5
  2. ROE 5 Year Average 03/2012 = 4.22
  3. ROE 5 Year Average 12/2011 = 4.22
  4. Debt/Total Cap 5 Year Average 03/2012 = 43.46
  5. Current Ratio = 0.73
  6. Current Ratio 5 Year Average = 0.84
  7. Quick Ratio = 0.78
  8. Cash Ratio = 0.44
  9. Interest Coverage Quarterly = 32.45
  10. Long term debt to equity = 1.66

Company: Johnson Control (JCI)

Brief Overview

  1. Short Ratio = 3.8
  2. 5 year sales growth rate = 3.54%
  3. EPS vs 1 year ago = 16.8%
  4. 5 year capital spending growth = - 4.19%
  5. Long term debt to equity ratio = 0.49
  6. Relative Strength 52 weeks = 29
  7. Cash Flow 5-year Average = 2.8
  8. Profit Margin = 3.96%
  9. Operating Margin = 4.79%
  10. Quarterly Revenue Growth = 2.1%
  11. Quarterly Earnings Growth = 16.8%
  12. Operating Cash Flow = 1.3B
  13. Beta = 1.63
  14. Percentage Held by Institutions = 79.3%
  15. Short Percentage of Float = 2.7%
  16. Levered Free Cash Flow = -313M

Growth

  1. Net Income ($mil) 12/2011 = 1624
  2. Net Income ($mil) 12/2010 = 1491
  3. Net Income ($mil) 12/2009 = -338
  4. Net Income Reported Quarterly ($mil) = 364
  5. EBITDA ($mil) 12/2011 = 3016
  6. EBITDA ($mil) 12/2010 = 2624
  7. EBITDA ($mil) 12/2009 = 666
  8. Cash Flow ($/share) 12/2011 = 3.51
  9. Cash Flow ($/share) 12/2010 = 3.02
  10. Cash Flow ($/share) 12/2009 = 0.94
  11. Sales ($mil) 12/2011 = 40833
  12. Sales ($mil) 12/2010 = 34305
  13. Sales ($mil) 12/2009 = 28497
  14. Annual EPS before NRI 12/2007 = 2.1
  15. Annual EPS before NRI 12/2008 = 2.33
  16. Annual EPS before NRI 12/2009 = -0.31
  17. Annual EPS before NRI 12/2010 = 1.97
  18. Annual EPS before NRI 12/2011 = 2.41

Dividend history

  1. Dividend Yield = 2.9
  2. Dividend Yield 5 Year Average 03/2012 = 1.96
  3. Annual Dividend 12/2011 = 0.64
  4. Dividend 5 year Growth 03/2012 = 15.86

Dividend sustainability

  1. Payout Ratio = 0.28
  2. Payout Ratio 5 Year Average 03/2012 = 0.36
  3. Payout Ratio 5 Year Average 12/2011 = 0.35

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 18.37
  2. ROE 5 Year Average 03/2012 = 12.54
  3. ROE 5 Year Average 12/2011 = 12.66
  4. Debt/Total Cap 5 Year Average 03/2012 = 27.23
  5. Current Ratio = 1.17
  6. Current Ratio 5 Year Average = 1.12
  7. Quick Ratio = 0.9
  8. Cash Ratio = 0.24
  9. Interest Coverage = 11
  10. Retention rate = 72%

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 CenturyLink: A Chance To Get In At $36.80 Or Earn 5.6% in 6 months

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.

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

Source: A Sundry Array Of Dividend Plays To Consider