1 Run Of The Mill And 4 Good Dividend Plays To Mull Over

|
 |  Includes: EMR, ETP, TNH, VALE, X
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 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.

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. Investors looking for other ideas might find this article to be of interest American Capital Agency: 2 Extra Streams Of Income in addition to the dividend

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.

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.

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: Emerson Electric Company (EMR)

Click to enlarge

Basic Key ratios

  1. Profit margin = 9.8%
  2. Quarterly earnings growth rate= - 2.00%
  3. Quarterly revenue growth rate = 1.10%
  4. Beta = 1.4
  5. Levered free cash flow = 2.37B
  6. Relative Strength 52 weeks = 52
  7. 52 week change = 3.24%
  8. Cash Flow 5 -year Average = 3.64
  9. Short ratio = 2.5%
  10. Sales vs 1 year ago = 15%
  11. 5 year capital spending rate = 0.26%

Growth

  1. Net Income ($mil) 12/2011 = 2480
  2. Net Income ($mil) 12/2010 = 2164
  3. Net Income ($mil) 12/2009 = 1724
  4. EBITDA ($mil) 12/2011 = 4721
  5. EBITDA ($mil) 12/2010 = 3956
  6. EBITDA ($mil) 12/2009 = 3397
  7. Cash Flow ($/share) 12/2011 = 4.46
  8. Cash Flow ($/share) 12/2010 = 3.8
  9. Cash Flow ($/share) 12/2009 = 3.26
  10. Sales ($mil) 12/2011 = 24222
  11. Sales ($mil) 12/2010 = 21039
  12. Sales ($mil) 12/2009 = 20915
  13. Annual EPS before NRI 12/2007 = 2.66
  14. Annual EPS before NRI 12/2008 = 3.11
  15. Annual EPS before NRI 12/2009 = 2.27
  16. Annual EPS before NRI 12/2010 = 2.69
  17. Annual EPS before NRI 12/2011 = 3.24

Click to enlarge

Dividend history

  1. Dividend Yield = 3.4
  2. Dividend Yield 5 Year Average = 2.80
  3. Dividend 5 year Growth = 7.09

Dividend sustainability

  1. Payout Ratio = 0.47
  2. Payout Ratio 5 Year Average = 0.47

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 11.16
  2. 5 Year History EPS Growth = 2.01
  3. 5 Year History EPS Growth = 2.01
  4. ROE 5 Year Average = 23.37
  5. Current Ratio = 1.38
  6. Current Ratio 5 Year Average = 1.43
  7. Quick Ratio = 1.12
  8. Cash Ratio = 0.42
  9. Interest Coverage Quarterly = 15.03
  10. Retention rate = 53%
  11. Long term debt to equity = 0.38

Company: Energy Tran Partners (ETP)

Brief Overview

  1. Levered Free Cash Flow = -543.81M
  2. 5 year sales growth rate = -3.00%
  3. Sales vs 1 year ago = 16%
  4. Sales vs quarter 1 year ago = 22.60%
  5. EPS 5 year growth rate = -18.7%
  6. EPS vs 1 year ago = 350%
  7. Relative Strength 52 weeks = 53
  8. Cash Flow 5-year Average = 4.97
  9. Profit Margin = 23.75%
  10. Quarterly Revenue Growth = -22.6%
  11. Quarterly Earnings Growth = 350.9%
  12. Operating Cash Flow = 1.31B
  13. Beta = 0.89
  14. Percentage Held by Institutions = 21.8%
  15. Short Percentage of Float = 3.5%

Growth

  1. Net Income ($mil) 12/2011 = 669
  2. Net Income ($mil) 12/2010 = 617
  3. Net Income ($mil) 12/2009 = 792
  4. Net Income Reported Quarterly ($mil) = 1115
  5. EBITDA ($mil) 12/2011 = 1631
  6. EBITDA ($mil) 12/2010 = 1398
  7. EBITDA ($mil) 12/2009 = 1520
  8. Cash Flow ($/share) 12/2011 = 5.67
  9. Cash Flow ($/share) 12/2010 = 5.34
  10. Cash Flow ($/share) 12/2009 = 6.32
  11. Sales ($mil) 12/2011 = 6850
  12. Sales ($mil) 12/2010 = 5885
  13. Sales ($mil) 12/2009 = 5417
  14. Annual EPS before NRI 12/2007 = 3.31
  15. Annual EPS before NRI 12/2008 = 4.09
  16. Annual EPS before NRI 12/2009 = 2.51
  17. Annual EPS before NRI 12/2010 = 1.47
  18. Annual EPS before NRI 12/2011 = 1.48

Click to enlarge

Dividend history

  1. Dividend Yield = 7.8
  2. Dividend Yield 5 Year Average = 7.9
  3. Dividend 5 year Growth = 1.56

Dividend sustainability

  1. Payout Ratio = 0.75
  2. Payout Ratio 5 Year Average 12/2011 = 1.68

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 12.05
  2. ROE 5 Year Average 12/2011 = 19.14
  3. Current Ratio = 1.10
  4. Current Ratio 5 Year Average = 1.15
  5. Quick Ratio = 0.61
  6. Cash Ratio = 0.19
  7. Interest Coverage Quarterly = 9.33

Company: Vale SA (VALE)

Click to enlarge

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 = -2.10
  6. Quarterly Earnings Growth = -48%
  7. Operating Cash Flow = 17.07B
  8. Beta = 1.75
  9. Levered Free Cash Flow = -3.96B
  10. Sales vs 1 year ago = 30%
  11. Sales vs quarter 1 year ago = -16.3%
  12. EPS 5 year growth rate = 15%
  13. 5 year capital spending growth rate = 5%

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

Click to enlarge

Dividend history

  1. Dividend Yield = 6.3
  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 = 2.09
  4. Current Ratio 5 Year Average = 2.24
  5. Quick Ratio = 1.49
  6. Cash Ratio = 0.75
  7. Interest Coverage = 12.3
  8. Retention ratio = 62%
  9. Long term debt to equity ratio = 0.36

Notes

The stock is attempting to put in a base formation and depending on your investment time frame it could make for a good investment at current prices. If you have an investment time frame of 3-5 years then you consider taking a position at current prices. Don't take large bites but nibble. One other option would be to sell puts at strikes you would not mind owning the stock at.

For investors with a shorter investment time frames, consider waiting till the market mount a stronger correction before jumping into this stock. Potentially oil could pull back to the 65-70 ranges. A pull back to these ranges will definitely have a negative impact on the price of this stock.

Company: United States Steel Corp (X)

Brief Overview

  1. 52 week change = -36%
  2. Relative Strength 52 weeks = 16
  3. Cash Flow 5-year Average = 8.6
  4. Profit Margin = - 1.53%
  5. Operating Margin = 2.07%
  6. Quarterly Revenue Growth = - 2.00
  7. Quarterly Earnings Growth = 54.00
  8. Operating Cash Flow = 991M
  9. Beta = 2.42
  10. Percentage Held by Institutions = 78.2%
  11. Short Percentage of Float = 24%
  12. Levered Free Cash Flow = 479M
  13. 5 year sales growth rate = 1.8
  14. Sales vs 1 year ago = 14%
  15. Sales vs quarter 1 year ago= 6%

Growth

  1. Net Income ($mil) 12/2011 = -53
  2. Net Income ($mil) 12/2010 = -482
  3. Net Income ($mil) 12/2009 = -1401
  4. Net Income Reported Quarterly ($mil) = -219
  5. EBITDA ($mil) 12/2011 = 898
  6. EBITDA ($mil) 12/2010 = 468
  7. EBITDA ($mil) 12/2009 = -1025
  8. Cash Flow ($/share) 12/2011 = 3.62
  9. Cash Flow ($/share) 12/2010 = 1.75
  10. Cash Flow ($/share) 12/2009 = -5.27
  11. Sales ($mil) 12/2011 = 19884
  12. Sales ($mil) 12/2010 = 17374
  13. Sales ($mil) 12/2009 = 11048
  14. Annual EPS before NRI 12/2007 = 8.74
  15. Annual EPS before NRI 12/2008 = 17.88
  16. Annual EPS before NRI 12/2009 = -10.53
  17. Annual EPS before NRI 12/2010 = -2.83
  18. Annual EPS before NRI 12/2011 = -1.11

Click to enlarge

Dividend history

  1. Dividend Yield = o.9
  2. Dividend Yield 5 Year Average = 1.10
  3. Dividend 5 year Growth = -27%

Dividend sustainability

  1. Payout Ratio 5 Year Average 12/2011 = 0.38

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 8
  2. ROE 5 Year Average 12/2012 = 5.93
  3. Current Ratio = 1.59
  4. Current Ratio 5 Year Average = 1.85
  5. Quick Ratio = 0.82
  6. Cash Ratio = 0.16
  7. Interest Coverage Quarterly = 0.90

Notes

It is trading close to its Oct, 2003 lows and at this point is desperately trying to put in a base. It has tested the 17.67-17.80 ranges twice and on both occasions has managed to bounce off this zone. As long as it stays above this zone the outlook will remain neutral. A weekly close above 24 will turn the outlook to bullish. A weekly close below 17.50 will turn the outlook to bearish and could push it all the way down to the 10.00-12.50 ranges before a new bottom takes hold. Percentage short of float is a 24%. This is a rather lofty number and makes it a good candidate for a short squeeze. At this point in time this stock would fall under the "run of the mill category" and only individuals willing to take on some risk should consider this play.

Company: Terra Nitrogen (TNH)

Click to enlarge

Basic Key ratios

  1. Quarterly revenue growth rate = 0.5%
  2. Quarterly earnings growth rate = 5.00%
  3. 52 week change = 51.33%
  4. Beta = 1.10
  5. Profit margins = 36.5%
  6. 5 year sales growth rate = 5.02%
  7. Cash Flow 5 -year Average = 13.26
  8. Long term debt to equity = 0.00
  9. Sales vs 1 year ago = 41%
  10. Sales vs quarter 1 year ago = 0.50
  11. 5 year capital spending growth rate = 12.5%

Growth

  1. Net Income ($mil) 12/2011 = 508
  2. Net Income ($mil) 12/2010 = 202
  3. Net Income ($mil) 12/2009 = 144
  4. Net Income Reported Quarterly ($mil) = 124
  5. EBITDA ($mil) 12/2011 = 528
  6. EBITDA ($mil) 12/2010 = 219
  7. EBITDA ($mil) 12/2009 = 161
  8. Cash Flow ($/share) 12/2011 = 29.1
  9. Cash Flow ($/share) 12/2010 = 11.83
  10. Cash Flow ($/share) 12/2009 = 8.69
  11. Sales ($mil) 12/2011 = 799
  12. Sales ($mil) 12/2010 = 565
  13. Sales ($mil) 12/2009 = 508
  14. Annual EPS before NRI 12/2007 = 10.9
  15. Annual EPS before NRI 12/2008 = 14.9
  16. Annual EPS before NRI 12/2009 = 5.4
  17. Annual EPS before NRI 12/2010 = 8.02
  18. Annual EPS before NRI 12/2011 = 15.9

Click to enlarge

Dividend history

  1. Dividend Yield = 7.00
  2. Dividend Yield 5 Year Average = 7.7%
  3. Dividend 5 year Growth = 17.5%

Dividend sustainability

  1. Payout Ratio = 1.10
  2. Payout Ratio 5 Year Average = 0.99

Performance

  1. 5 Year History EPS Growth = 3.21
  2. ROE 5 Year Average = 132.33
  3. Current Ratio 12/2011 = 4.63
  4. Current Ratio 5 Year Average = 3.44
  5. Quick Ratio = 6.22
  6. Cash Ratio = 6.2

Notes

The stock has had a terrific run up over the years, and though it has pulled back quite a bit, from a long-term perspective, it is still slightly overbought. We would wait for a retest of its lows in the 175-180 ranges before committing new money to long term positions. If it trades in this range investors can consider selling in the money puts in the 175.00-180.00 ranges to further lower the entry cost. If you do sell puts consider selling short term puts with less than three months of time on them. This will increase the odds of the shares being put to your account.

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.

Additional disclosure: 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 dailyfinance.com.