By: Ahmed Ishtiaq
Our dividend picks have been a hit lately, providing investors with a bundle of knowledge about the financial position and business prospects of the companies. We try to pick the stock with an attractive dividend yield and strong financial position. It is extremely important for investors to find alternatives to low yielding bonds, and we try to play our part in their hunt for high yields. In this article, we have identified three stocks with dividend yields above 9%. Some of these stocks may not be very well known to investors, but their yields are certainly attractive. Let's look at the financial position and business prospects of these companies.
Pengrowth Energy Corporation:
Pengrowth Energy Corporation (PGH) is a dividend-paying, intermediate Canadian producer of oil and natural gas, headquartered in Calgary, Alberta. Pengrowth's assets include Swan Hills light oil, Cardium light oil and the Lindbergh thermal bitumen project. Pengrowth has shown impressive revenue growth over the past three years. Revenues have grown at an average annual growth of around 6% during the past three years. However, Pengrowth has also been a victim of depressed commodity prices. As a result, the trailing twelve month revenues have come down by 3.36% compared to the last year.
Pengrowth followed its peer Enerplus Corporation (NYSE:ERF) and slashed its dividends in anticipation of low commodity prices. At the moment, the company pays an annual dividend of $0.48 per share, yielding 9.21%. Further, the company also recently announced that it will halt its Premium Dividend Reinvestment Program due to low share prices. However, the Dividend Reinvestment Program (NYSEARCA:DRIP) will remain intact. Cash flows for the company have shown remarkable growth over the past three years. Cash flows from operations grew at an average annual rate of 8.14%.
On the other hand, capital expenditures also increased substantially, causing the free cash flows to decline in 2011. Before 2011, free cash flows provided adequate cover to the cash dividends. However, at the end of 2011, the company had $76 million in free cash flows and paid $278 million in cash dividends. Capital expenditures for the year more than doubled from the previous year and went up to $617 million. Management at Pengrowth, however, is mindful of the increase in capital expenditures and plans to bring down the expense. Recently, the company acquired NAL Energy Corp, which will substantially expand the operations of the company. As a result of expanded portfolio, management can face problems managing its assets. However, if assets are managed properly, the acquisition can be beneficial to the shareholders.
Vector Group (NYSE:VGR) manufactures cigarettes through subsidiaries. Its Liggett Group subsidiary produces cigarettes under discount brands and private labels. The company also produces cigarettes in Russia. Recently, Vector Group has launched QUEST, which it claims is a genetically engineered nicotine-free cigarette. Tobacco manufacturers have the habit of maintaining high dividend yields. Vector Group follows the trend in the sector and pays an annual dividend of $1.60 per share, yielding 9.85%. However, the company has not increased its dividends for the whole of the last decade.
Cash flows from operations stand at $69 million for the trailing twelve months, almost double the amount generated at the end of last year. Since 2008, free cash flows for the company have been less than the cash dividends. However, the dividend payments have been unaffected by the level of free cash flows. Trailing twelve months free cash flows stand at $58 million, up from $24 million at the end of 2011. However, TTM free cash flows remain substantially lower than cash dividends of $133 million. Strong growth in revenues should enable the company to maintain its cash dividends.
NutriSystem (NASDAQ:NTRI) is a provider of weight management products and services. NutriSystem is sold directly to the consumer through nutrisystem.com, by phone, and at select retailers, with convenient home delivery. The company offers weight loss programs designed for women, men, and seniors, as well as the NutriSystem D plan, designed to help people with type II diabetes who want to lose weight. Despite a decline in revenues, the company has been able to maintain its dividends. At the moment, NutriSystem pays an annual dividend of $0.70, yielding 9.18%.
Cash flows from operations have followed revenues and declined in the recent years; however, free cash flows have been substantially higher than the dividends paid. At the end of 2011, the company paid $19 million in cash dividends and generated $39 million in free cash flows. However, for the trailing twelve months, $18 million in free cash flows fell a little short of $20 million paid in cash dividends.
It is very difficult to find stocks with stable dividends and such high dividend yields. These three companies have a good history of regular dividend payments. We believe these companies can be a fine addition to an income portfolio. All of these companies are in fairly good financial position, and operate in industries which have a good history of dividend payments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Ahmed Ishtiaq, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.