5 Impressive Plays Sporting Yields As High As 9.3%

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Includes: DUK, ERF, EXC, PGHEF, TNH
by: Tactical Investor

Investors should take the time to understand the following key ratios as many of them are used in this article. Getting a handle on these ratios could mean the difference of choosing a winner or a loser.

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.

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.

The payout ratio tells us what portion of the profit is being returned to investors. A pay out ratio over 100% indicates that the company is paying out more money to shareholders, then 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 sometime. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever; if your tolerance for risk is a low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of interest 5 Interesting Plays With Yields As High As 16%

Turnover Ratio lets you know the number of times a company's inventory is replaced in a given time period. It is calculated by dividing the cost of goods sold by average inventory during the time period studied. A high turn over ratio indicates that a company is producing and selling its good and services very quickly.

Debt to Equity Ratio is found by dividing the company's total amount of long-term debt (debts with interest rates that have a maturity longer than one year) by the total amount of equity. A debt to equity ratio of 0.5 tells us that the company is using 50 cents of liabilities in addition to each $1 dollar of shareholders equity in the business. There is no fixed ideal number as it depends on the industry the company is in. However, in general a ratio under 1 is acceptable and ideally it should be in the 0.5-0.6 ranges

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 flow is $300 million. If the share price is 100 and the free cash flow per share are $5, then 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.

Interest coverage is usually calculated by dividing the earnings before interest and taxes for a period of 1 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.

Inventory turnover is calculated by dividing sales by inventory. If a company generated $30 million in sales and had an average inventory of $6 million; the inventory turn over would be equal to 5. This value indicates that there are 5 inventory turnovers per year. This means that it takes roughly 2.4 months to sell the inventory. A low inventory turnover is a sign of inefficiency and vice versa.

Asset turnover is calculated by dividing revenues by assets. It measures a firm's effectiveness at using its assets in generating revenue. Higher numbers are generally better and vice versa. In general companies with low profit margins have higher asset turnover rates then companies with high profit margins.

ROE is obtained by dividing the net income by share holder's equity. It measures how much profit a company generates with the money shareholders have invested in it.

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

Quick ratio or acid test is obtained by adding cash and cash equivalents plus marketable securities and accounts receivable dividing them by current liabilities. It is a measure of a company's ability to use its quick assets (assets that can be sold of immediately at close to book value) to pay off its current liabilities immediately. A company with a quick ratio of less than 1 cannot pay back its current liabilities. Additional key metrics are addressed in this article Enterprise Products Is A Great Long-Term Play

Terra Nitrogen Co., L.P. (NYSE:TNH) is our favorite play for the following reason

  1. A strong quarterly earnings growth rate of 180%
  2. A strong quarterly revenue growth rate of 49%
  3. A great ROE of 197% and ROA of 100.93%
  4. Quarterly earnings growth rate of 180%
  5. Quarterly revenue growth rate of 49%
  6. 5 year dividend average of 8%
  7. 5 year dividend growth rate of 83%
  8. A strong interest coverage ratio of 9.8
  9. A great current ratio of 7
  10. Net income and operating cash flow have been trending upwards for the past 3 years and they both experienced huge gains in 2011.

100k invested in TNH would have grown to a whopping $4.3 million.

Important facts investors should be aware in regards to investing in MLP's

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.

Stock

Dividend Yield

Market Cap

Forward PE

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

PGH

8.40%

3.3B

35

650.72M

10.50%

1.66

1.15B

557M

ERF

9.30%

4.20B

9.74

1.09B

1.80%

1.24

1.09B

525.75M

TNH

7.6%

4.19B

14

459.10M

49.50%

0.65

740.8M

445.60M

EXC

5.30%

25.9B

13.8

6.66B

-11.20%

0.5

18.92B

4.85B

DUK

4.70%

28.6B

15

4.97B

0.50%

0.32

14.31B

3.88B

Pengrowth Energy Corp (NYSE: PGH)

Industry : Production & Extraction

It has a levered free cash flow of $-2.1 million and a current ratio of 0.71.

Net income for the past three years

2008 = $-562.72 million

2009 = $84.86 million

2010 = $230.26 million

Total cash flow from operating activities

2008 = $746.72 million

2009 = $551.35 million

2010 = $606 million

Key Ratios

P/E Ratio = 31.70

P/E High - Last 5 Yrs = 34.40

P/E Low - Last 5 Yrs = 5.3

Price to Sales = 2.56

Price to Book = 1.20

Price to Tangible Book = 1.56

Price to Cash Flow = 62.20

Price to Free Cash Flow = 17.60

Quick Ratio = 0.5

Current Ratio = 0.7

LT Debt to Equity = 0.4

Total Debt to Equity = 0.41

Interest Coverage = 2.5

Inventory Turnover = N.A.

Asset Turnover = 0.3

ROE = 0.69%

Return on Assets = 1.91%

Current Ratio = 0.71

Total debt = 1.27B

Book value = 9.37

Qtrly Earnings Growth = N/A

Dividend yield 5 year average = 15.7%

Dividend rate = $ 0.84

Payout ratio = 101%

Dividend growth rate 3 year avg = -31%

Dividend growth rate 5 year avg = 0%

Consecutive dividend increases = 0 years

Paying dividends since = 2006

Total return last 3 years = N/A

Total return last 3 years = N/A

Enerplus Corp (NYSE: ERF)

Industry : Production & Extraction

It has a levered free cash flow rate of $-256 million and a current ratio of 0.66

Net income for the past three years

2008 = $-85.92 million

2009 = $85.01 million

2010 = $127.93 million

Total cash flow from operating activities

2008 = $1.04 billion

2009 = $740.01 million

2010 = $707.65 million

Key Ratios

P/E Ratio = 10.2

P/E High - Last 5 Yrs = 146.6

P/E Low - Last 5 Yrs = 3.8

Price to Sales = 3.38

Price to Book = 1.30

Price to Tangible Book = 1.36

Price to Cash Flow = 5.20

Price to Free Cash Flow = -7.70

Quick Ratio = 0.3

Current Ratio = 0.7

LT Debt to Equity = 0.19

Total Debt to Equity = 0.2

Interest Coverage = 9.8

Inventory Turnover = N.A.

Asset Turnover = 0.2

ROE = 20.2%

Return on Assets = 7.7%

Current Ratio = 0.66

Total debt = 782.31M

Book value = 20.28

Quarterly Earnings Growth = N/A

Dividend yield 5 year average = 13.1%

Dividend rate = $ 2.16

Payout ratio = 87%

Dividend growth rate 3 year avg = -19.6%

Dividend growth rate 5 year avg = -9.21%

Consecutive dividend increases = 5 years

Paying dividends since = 2000

Total return last 3 years = N/A

Total return last 3 years = N/A

Notes

Negative 3 and 5 year growth rates plus a high payout ratio are things investors should pay attention to before jumping into this play. At this point we would only advise individuals willing to take on more risk to get into this play.

Terra Nitrogen Co., L.P.

It has a levered free cash flow rate of $228 million.

Net income for the past three years

2008 = $422.3 million

2009 = $123 million

2010 = $201.6 million

2011= It far stands at $378 million and could top the $500 million mark.

Total cash flow from operating activities

2008 = $292 million

2009 = $158 million

2010 = $259 million

2011= it stands at $376 and could top $508 million

Key Ratios

  1. P/E Ratio = 15.00
  2. P/E High - Last 5 Yrs = 27
  3. P/E Low - Last 5 Yrs = 2.80
  4. Price to Sales = 5.60
  5. Price to Book = 15.39
  6. Price to Tangible Book = 15.39
  7. Price to Cash Flow = 10.10
  8. Price to Free Cash Flow = 53.90
  1. Quick Ratio = 5.50
  2. Current Ratio = 7.00
  3. LT Debt to Equity = 0.00
  4. Total Debt to Equity = 0.00
  5. Interest Coverage = 9.8
  6. Inventory Turnover = 11.60
  7. Asset Turnover = 2.70

  1. ROE 197.82%
  2. Return on assets 100.93%
  3. Quarterly earnings growth rate 180.9%
  4. Total debt 0
  5. Book value 12.72
  6. Dividend yield 5 year Average 8.0 %
  7. Dividend rate $ 18.12
  8. Payout ratio 99%
  9. Dividend growth rate 5 year average 81.3 %
  10. Consecutive dividend increases 3 years
  11. Paying dividends since 1993
  12. Total return last 3 years 105%
  13. Total return last 5 years 506%

Positive developments

The dividend was increased from $3.96 to $4.53. It also sports a very strong quarterly earnings growth rate of 180%, a strong quarterly revenue growth rate of 49%, and great ROE of 197%. Net income and operating cash flow have exploded upwards in the past 3 years.

Exelon Corp. (NYSE: EXC)

Industry: Electric Utilities

It has a levered free cash flow rate of $1.38 billion current ratio of 1.26.

Net income for the past three years

  1. 2008= $2.73 billion
  2. 2009= $2.7 billion
  3. 2010= $2.56 billion
  4. 2011= it stands at $1.9 billion and could top the $2.55 billion mark

Total cash flow from operating activities

  1. 2008= $6.55 billion
  2. 2009 =$6.09 billion
  3. 2010 = $5.24 billion
  4. 2011= It stands at $2.94 billion and could top the $4.8 billion mark

Key Ratios

• Price to sale 5.5

• Price to tangible book 0

• Price to cash flow 5.3

• Price to free cash flow 3.6

• 5 year sales growth 0.59

• Inventory turnover 0

• Asset turnover 0

• ROE 17.05%

• Return on assets 5.21%

• Total debt 14.58B

• Book value 21.65

• Qtrly Earnings Growth 15.60

• Dividend yield 5 year Average 4.10%

• Dividend rate $ 2.10

• Payout ratio 57.00%

• Dividend growth rate 3 year average 1.23%

• Dividend growth rate 5 year average 5.75%

• Consecutive dividend increases 7years

• Paying dividends since 1902

• Total return last 3 years -16.33%

• Total return last 5 years -22%

Notes

Negative total 3 year and 5 rates of return

Duke Energy Corp (NYSE: DUK)

Industry: Electric Utilities

It has levered free cash flow rate of -$1.19 billion and current ratio of 1.23.

Net income for the past three years

2008 = $1.36 billion

2009 = $1.08 billion

2010 = $1.32 billion

2011= It stands at $1.5 billion and could top $1.9billlion

Total cash flow from operating activities

2008 = $3.33 billion

2009 = $3.46 billion

2010 = $4.51 billion

2011= It stands at $3 billion and could top the $4.3 billion mark.

Key Ratios

P/E Ratio15.4

P/E High - Last 5 Yrs21.6

P/E Low - Last 5 Yrs10

Price to Sales1.96

Price to Book1.26

Price to Tangible Book1.54

Price to Cash Flow7.4

Price to Free Cash Flow-15.5

Quick Ratio0.8

Current Ratio1.2

LT Debt to Equity0.77

Total Debt to Equity0.84

Interest Coverage4.20

Inventory Turnover6.60

Asset Turnover0.2

ROE 8.21%

Return on Assets3.11%

200 day moving average19.92

Current Ratio1.23

Total debt 20.11B

Book value17.11

Qtrly Earnings Growth-29.60%

Dividend yield 5 year average5.40

Dividend rate$ 1.00

Payout ratio72.00%

Dividend growth rate 3 year avg2.86%

Dividend growth rate 5 year avg-2.36%

Consecutive dividend increases4 years

Paying dividends since1926

Total return last 3 years65.31%

Total return last 5 years 30.00%

Notes

DUK has a decent interest rate coverage ratio of 4.2, a good current ratio of 1.2 and net income has surged in 2011. On the negative side the 5 year dividend growth rate is negative (-2.36%) and quarterly earnings growth rate is negative also (-29%)

Conclusion

The markets are extremely overbought in the short to intermediate time frames, and hence it would be best for long-term investors to wait for a strong pull back before committing fresh money to this market.

EPS and EPS surprise and free cash flow per share charts provided by Zacks.com and dividend history charts sourced from dividata.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: 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.