Seeking Alpha
Profile| Send Message|
( followers)  

Investing in stocks that pay dividends is one of the safest and best methods of building personal wealth. By investing in companies that pay dividends, you have the potential to speed up the wealth-building process and stand to benefit from two fronts, dividends and capital gains. Additionally, dividend stocks provide you with a steady stream of income without having to sell your position. Investors also have the benefit of having a steady cash flow regardless of market direction. The outlook for the basic material sector in the long-term is bright (especially stocks that are connected to the energy sector), and we have selected three plays that we think will perform well in the years to come. We selected two pipeline plays as they serve as "toll collectors" and in general, the underlying price of the commodity they transport does not have too much of an impact on their earnings. The two pipe line plays in question are, Energy Transfer Partners (NYSE:ETP) and Atlas Pipeline Partners (NYSE:APL).

Energy Transfer Partners has a significant presence in the natural-gas midstream, transportation and storage businesses. It is well positioned to compete in this field as its assets are located in major natural gas producing regions in the US. The midstream segment covers roughly 7,000 miles natural gas gathering pipelines, 3 natural-gas processing plants, 17 natural gas treating facilities, and 10 natural-gas conditioning facilities. The intrastate transportation and storage segment consists of 7700 miles of natural-gas transportation pipelines and three natural-gas storage facilities. Atlas Pipeline Partners is involved in the processing of natural gas in the Mid-Continent and Appalachia regions. It also engages in the transporting of natural-gas liquids in the Mid-Continent region. It owns and operates roughly 9,100 miles of intrastate natural-gas gathering systems, and seven natural-gas processing plants. It also owns roughly 2,200 miles of common carrier pipelines that transport natural gas liquids from New Mexico and Texas to Mount Belvieu, Texas.

We also selected Talisman Energy Inc as it is a direct play on Oil and natural gas. It is engaged in the exploration, development, transportation and production of crude oil, natural-gas liquids and natural gas. Oil consumption is projected to increase in the years to come, and many analysts feel that oil will eventually break past $150. Thus, Talisman is well positioned to profit from higher oil prices.

In order to make the cut, companies had to meet the following requirements.

  1. Net income should be trending upwards for the past three years.
  2. Cash flow per share should be trending upwards for the past three years.
  3. 3-5 year Projected EPS growth rate of 8% or a dividend yield of 6% or higher
  4. Sales vs 1 year ago of 16% or higher.
  5. Annual EPS before NRI should be trending upwards for the past 3 years.
  6. A projected year over year growth rate of 30% or higher for 2013
  7. Interest coverage of 5 or higher

Company: Energy Transfer Partners

Brief Overview

  1. Relative Strength 52 weeks = 53
  2. Profit Margin = 24.6%
  3. Operating Margin = 19%
  4. Quarterly Revenue Growth = -23.8%
  5. Quarterly Earnings Growth = -24%
  6. Operating Cash Flow = 1.3B
  7. Levered free cash flow = -$506M
  8. Beta = 0.90
  9. Percentage Held by Institutions = 21.8%
  10. Short Percentage of Float = 4.2%
  11. Sales vs 1 year ago = 16%
  12. Sales vs quarter 1 year ago = -23%
  13. Projected year over year growth rate for 2013 = 99%

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) = 111.4
  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

Dividend history

  1. Dividend Yield = 8.5
  2. Dividend Yield 5 Year Average = 7.9
  3. Dividend 5 year Growth = 2.1

Dividend sustainability

  1. Payout Ratio = 0.78
  2. Payout Ratio 5 Year Average = 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 = 0.90
  4. Current Ratio 5 Year Average = 1.15
  5. Quick Ratio = 0.61
  6. Cash Ratio = 0.19
  7. Interest Coverage Quarterly = 9.33

Suggested strategy

The stock is still in a corrective phase and will most likely trade between its October 2011 lows of 38.00, and its June 2012 lows of 41.15. Consider opening up positions in the 39.50-40.50 ranges. Alternatively, you could sell in the money puts when it trades down to the 41.00-41.50 ranges.

Company: Atlas Pipeline Partners

Brief Overview

  1. Relative Strength 52 weeks = 59
  2. Levered free cash flow = - $195M
  3. Operating cash flow = $115M
  4. Profit Margin = 9.6%
  5. 52 week change = 17%
  6. Operating Margin = 10.5%
  7. Quarterly Revenue Growth = -25%
  8. Quarterly Earnings Growth = 914%
  9. Beta = 1.9
  10. Percentage Held by Institutions = 37.5%
  11. Short Percentage of Float = 3.9%
  12. Sales vs 1 year ago = 42%
  13. Projected year over year growth rate for 2013 = 32%

Growth

  1. Net Income ($mil) 12/2011 = 289
  2. Net Income ($mil) 12/2010 = 276
  3. Net Income ($mil) 12/2009 = 60
  4. Net Income Reported Quarterly ($mil) = 5
  5. EBITDA ($mil) 12/2011 = 409
  6. EBITDA ($mil) 12/2010 = 128
  7. EBITDA ($mil) 12/2009 = 171
  8. Cash Flow ($/share) 12/2011 = 3.01
  9. Cash Flow ($/share) 12/2010 = 0.87
  10. Cash Flow ($/share) 12/2009 = 1.79
  11. Sales ($mil) 12/2011 = 1303
  12. Sales ($mil) 12/2010 = 936
  13. Sales ($mil) 12/2009 = 904
  14. Annual EPS before NRI 12/2007 = 1.76
  15. Annual EPS before NRI 12/2008 = 2.41
  16. Annual EPS before NRI 12/2009 = -0.13
  17. Annual EPS before NRI 12/2010 = -0.65
  18. Annual EPS before NRI 12/2011 = 1.3

Dividend history

  1. Dividend Yield = 6.8
  2. Dividend Yield 5 Year Average 03/2012 = 9.45
  3. Dividend 5 year Growth = - 20.00

Dividend sustainability

  1. Payout Ratio = 2.15
  2. Payout Ratio 5 Year Average 03/2012 = 1.46

Performance

  1. ROE 5 Year Average 03/2012 = 6.91
  2. Debt/Total Cap 5 Year Average 03/2012 = 48.1
  3. Current Ratio = 1.10
  4. Current Ratio 5 Year Average = 0.74
  5. Quick Ratio = 0.77
  6. Interest Coverage = 5 .10

Suggested strategy

This stock makes for a great long-term investment. It offers a great yield of 6.8% and is in nice upward trend. It is slightly overbought and would make for a good investment if it were to pull back to the 31.50-32.50 ranges.

Company: Talisman Energy (NYSE:TLM)

Basic overview

  1. Sales vs quarter 1 year ago = -16%
  2. Sales vs 1 year ago = 18%
  3. Net income vs quarter 1 year ago = - 72%
  4. 5 year sales average = 5.34%
  5. Quarterly revenue growth = -16.3%
  6. 52 week change = -16%
  7. Beta = 1.62
  8. Levered free cash flow = - 2.2B
  9. Profit margins = 11.2%
  10. Projected year over year growth rate = 37%

Growth

  1. Net Income ($mil) 12/2011 = 776
  2. Net Income ($mil) 12/2010 = 629
  3. Net Income ($mil) 12/2009 = 385
  4. EBITDA ($mil) 12/2011 = 4569
  5. EBITDA ($mil) 12/2010 = 3521
  6. EBITDA ($mil) 12/2009 = -329
  7. Cash Flow ($/share) 12/2011 = 2.94
  8. Cash Flow ($/share) 12/2010 = 2.19
  9. Cash Flow ($/share) 12/2009 = 0.17
  10. Sales ($mil) 12/2011 = 8272
  11. Sales ($mil) 12/2010 = 6712
  12. Sales ($mil) 12/2009 = 7028
  13. Annual EPS before NRI 12/2007 = 0.93
  14. Annual EPS before NRI 12/2008 = 1.91
  15. Annual EPS before NRI 12/2009 = 0.17
  16. Annual EPS before NRI 12/2010 = 0.13
  17. Annual EPS before NRI 12/2011 = 0.51

Dividend history

  1. Dividend Yield = 2.00
  2. Dividend Yield 5 Year Average =1.4
  3. Dividend 5 year = 12

Dividend sustainability

  1. Payout Ratio = 0.52
  2. Payout Ratio 5 Year Average = 0.4

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 8.5
  2. ROE 5 Year Average = 11.46
  3. Return on Investment = 5.48
  4. Debt/Total Cap 5 Year Average = 29.37
  5. Current Ratio = 0.65
  6. Current Ratio 5 Year Average = 0.95
  7. Quick Ratio = 0.6
  8. Cash Ratio = 0.16
  9. Interest Coverage =6.8
  10. Debt to equity ratio = 0.47
  11. Retention rate = 48%

Suggested strategy

It put in a nice bottom in May and has been trending upwards since. The current pattern is rather bullish, and the stock should easily be able to test the $16-$17 ranges before running into any resistance. As it is slightly overbought, we would wait for a pullback to the 11.50-12.20 ranges before committing fresh money to this play.

EPS and EPS surprise 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 obtained from dailyfinance.com.

Disclaimer

It is imperative that you do your due diligence and then determine if the above plays meets with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Source: 3 Basic Material Plays That Make For Good Long-Term Investments