Market volatility and economic uncertainty are driving more individuals into stocks that pay dividends. Investors who are new to the concept of dividend investing should take the time to understand the following ratios as they could prove to be very useful in spotting future champions.
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 balances 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.
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 than earnings yield because of the above factor.
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 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 sometime. Individuals searching for other ideas might find this article to be of interest A Look At 5 Growth Plays: 4 Great, 1 Mediocre.
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 cash flow ratio is obtained by dividing the share price by cash flow per share. It is a measure of the market's expectations of a company's future financial health. The effects of depreciation and other non cash factors are removed, and this makes it easier for investors to assess foreign companies in the same industry. This ratio also provides a measure of relative value like the price to earnings ratio.
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.
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.
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 5 Great Plays With Yields In Excess Of 10%.
Atlas Pipeline Partners is our favorite play on the list for the following reasons:
It has a strong five-year dividend average of 9.48%.
It has a strong quarterly revenue growth of 32%.
Sales have jumped from $900 million in 2009 to 1.2 billion in 2011.
A good total debt to equity ratio of 0.41.
Adjusted EBITDA for the 4th quarter came in at $49 million, an increase of 15% Y-O-Y (year over year) increase.
It has a very strong three-year dividend growth rate of 150%.
A 3 year total return of almost 800%.
Net income has been trending upwards for the past three years.
Gross profits have surged from $90 million in 2009 to $197 million in 2011.
It has a good interest coverage ratio of 9.47.
It has a decent free cash flow yield of 7.21%
The current $600 million organic growth program is running ahead of schedule.
Distributable cash flow surged to $36.0 million in the 4th quarter; this represents an increase of 62% Y-O-Y.
Adjusted EBITDA was $181.00 million for the full 2011 year compared to 2010 when the adjusted EBITA came in at $175 million.
Distributed cash flow for 2011 was 50% higher than distributable cash in 2010.
APL increased the distribution from 54 cents to 55 cents per unit, a 49% increase Y-O-Y.
In the 4th quarter volume of processed gas moved up to 601 MMCFD, an increase of 23% Y-O-Y.
Management forecast an Adjusted EBITDA of $200-$225 million for 2012. This is based on adjusted average natural gas price of $2.92 per MMbtu, a weighted average NGL price of $1.06 per gallon and an average crude oil price of $102.84 per barrel. Management is forecasting distributable cash flow of $130-$165 million based on the same assumptions.
If the above stated commodities trade in a similar price range management expects even stronger growth in 2013 as the result of organic expansions that are already in progress. Under this scenario, management anticipates that total 2013 adjusted EBITDA could range from $250-$300 million, which translates into a 66% increase over 2011 Adjusted EBITDA results.
100K invested in APL for 10 years would have grown to $245. 9K
Company: Costco Whole (COST)
Levered Free Cash Flow = N/A
Basic Key ratios
Percentage Held by Insiders = 0.95
Market Cap ($mil) = 38857
Number of Institutional Sellers 12 Weeks = 3
Growth
Net Income ($mil) 12/2011 = 1462
Net Income ($mil) 12/2010 = 1303
Net Income ($mil) 12/2009 = 1086
12months Net Income this Quarterly/ 12months Net Income 4Q's ago = 8.44
Quarterly Net Income this Quarterly/ same Quarter year ago = 13.22
EBITDA ($mil) 12/2011 = 3354
EBITDA ($mil) 12/2010 = 2960
EBITDA ($mil) 12/2009 = 2563
Net Income Reported Quarterly tr ($mil) = 394
Annual Net Income this Yr/ Net Income last Yr = 12.2
Cash Flow ($/sh) 12/2011 = 5.29
Cash Flow ($/sh) 12/2010 = 4.81
Cash Flow ($/sh) 12/2009 = 4.25
Sales ($mil) 12/2011 = 88915
Sales ($mil) 12/2010 = 77946
Sales ($mil) 12/2009 = 71422
Annual EPS before NRI 12/2007 = 2.63
Annual EPS before NRI 12/2008 = 2.91
Annual EPS before NRI 12/2009 = 2.54
Annual EPS before NRI 12/2010 = 2.95
Annual EPS before NRI 12/2011 = 3.3
Dividend history
Dividend Yield = 1.07
Annual Dividend 12/2011 = 0.89
Annual Dividend 12/2010 = 0.77
Forward Yield = 1.08
Dividend sustainability
Payout Ratio 09/2011 = 0.27
Payout Ratio 06/2011 = 0.28
Payout Ratio 5 Year Average 12/2011 = 0.26
Payout Ratio 5 Year Average 09/2011 = 0.26
Payout Ratio 5 Year Average 06/2011 = 0.25
Change in Payout Ratio = 0.01
Performance
Percentage Change Price 52 Weeks Relative to S&P 500 = 17.16
Next 3-5 Year Estimate EPS Growth rate = 13.97
EPS Growth Quarterly(1)/Q(-3) = -113.92
5 Year History EPS Growth 12/2011 = 5.61
5 Year History EPS Growth 09/2011 = 5.61
ROE 5 Year Average 12/2011 = 12.88
ROE 5 Year Average 09/2011 = 12.88
ROE 5 Year Average 06/2011 = 12.88
Return on Investment 12/2011 = 11.35
Return on Investment 09/2011 = 11.35
Return on Investment 06/2011 = 11
Debt/Total Cap 5 Year Average 12/2011 = 16.63
Debt/Total Cap 5 Year Average 09/2011 = 16.63
Debt/Total Cap 5 Year Average 06/2011 = 16.27
Current Ratio 12/2011 = 1.16
Current Ratio 09/2011 = 1.16
Current Ratio 06/2011 = 1.13
Current Ratio 5 Year Average = 1.12
Quick Ratio = 0.59
Cash Ratio = 0.51
Interest Coverage Quarterly = 24.22
Valuation
Book Value Quarterly = 29.47
Price/ Book = 3.03
Price/ Cash Flow = 16.88
Price/ Sales = 0.42
EV/EBITDA 12 Mo = 10.27
R-squared EPS Growth 12/2011 = 0.56
R-squared EPS Growth 09/2011 = 0.56
Potash Corp. of Saskatchewan (POT)
Industry: Agricultural Chemicals
Free cash flow=f $472.25 million
Performance
Total return for the past 3 years = 71.43%
Total return for the past 5 years = 162.29%
Total return for the past 12 months = -15.87%
Consecutive dividend increases = 1 years
Growth
Net income for the past three years
Net Income - 2009 = $981 million
Net Income - 2010 = $1806 million
Net Income - 2011 = $3081 million
Total cash flow from operating activities
2009 = $923.9 million
2010 = $923.9 million
2010 = $3 billion
Gross profit for the past 3 years
2009= $1.01 billion
2010= $2.69 billion
2011= $4.3 billion
Operating income for the past 3 years
2009= $1.18 billion
2010= $2.59 billion
2011= $4.28 billion
EBITDA ($mil) 12/2011 = $N/A
EBITDA ($mil) 12/2010 = $2967
EBITDA ($mil) 12/2009 = $1503
Sales ($mil) 12/2011 = $8715
Sales ($mil) 12/2010 = $6539
Sales ($mil) 12/2009 = $3977
Dividend Sustainability
Total cash flow from operating activities
2009 = $923.9 million
2010 = $923.9 million
2010 = $3 billion
Payout Ratio = 11%
Other Key Important Ratios
Price to Sales = 4.66
Price to Book = 5.17
Price to Tangible Book = 5.52
Price to Cash Flow = 18.66
Price to Free Cash Flow = 36.6
Quick Ratio = 0.76
Current Ratio = 1.1
LT Debt to Equity = 0.5
Total Debt to Equity = 0.47
Interest Coverage = 11.18
Inventory Turnover = 7.07
Asset Turnover = 0.54
Dividend yield 5 year average = 0.38
Dividend rate = $ 0.56
Dividend growth rate 3 year avg = 36.67%
Dividend growth rate 5 year avg = 20.79
Consecutive dividend increases = 1 years
Paying dividends since = 1990
Total return last 3 years = 71.43%
Total return last 5 years = 162.29%
Company: Visa Inc-A (V)
Levered Free Cash Flow = 1.71B
Basic Key ratios
Percentage Held by Insiders = 0.04
Market Cap ($mil) = 95271
Number of Institutional Sellers 12 Weeks = 1
Growth
Net Income ($mil) 12/2011 = 3650
Net Income ($mil) 12/2010 = 2966
Net Income ($mil) 12/2009 = 2353
12months Net Income this Quarterly/ 12months Net Income 4Q's ago = 22.94
Quarterly Net Income this Quarterly/ same Quarter year ago = 16.4
EBITDA ($mil) 12/2011 = 7856
EBITDA ($mil) 12/2010 = 6535
EBITDA ($mil) 12/2009 = 5575
Net Income Reported Quarterly tr ($mil) = 1029
Annual Net Income this Yr/ Net Income last Yr = 23.06
Cash Flow ($/sh) 12/2011 = 6.97
Cash Flow ($/sh) 12/2010 = 5.65
Cash Flow ($/sh) 12/2009 = 4.34
Sales ($mil) 12/2011 = 9188
Sales ($mil) 12/2010 = 8065
Sales ($mil) 12/2009 = 6911
Annual EPS before NRI 12/2008 = 2.25
Annual EPS before NRI 12/2009 = 2.92
Annual EPS before NRI 12/2010 = 3.91
Annual EPS before NRI 12/2011 = 4.99
Dividend history
Dividend Yield = 0.75
Annual Dividend 12/2011 = 0.6
Annual Dividend 12/2010 = 0.5
Forward Yield = 0.75
Dividend 3 year Growth =30%
Dividend sustainability
ayout Ratio 06/2011 = 0.17
Payout Ratio 5 Year Average 06/2011 = 0.15
Change in Payout Ratio = 0.02
Performance
Percentage Change Price 52 Weeks Relative to S&P 500 = 53.74
Next 3-5 Year Estimate EPS Growth rate = 16.43
EPS Growth Quarterly(1)/Q(-3) = -121.14
ROE 5 Year Average 06/2011 = 11.12
Return on Investment 06/2011 = 13.86
Debt/Total Cap 5 Year Average 06/2011 = 0.47
Current Ratio 06/2011 = 2.82
Current Ratio 5 Year Average = 2.15
Quick Ratio = 2.66
Cash Ratio = 2.38
Interest Coverage Quarterly = 162.7
Valuation
Book Value Quarterly = 33.58
Price/ Book = 3.49
Price/ Cash Flow = 16.81
Price/ Sales = 10.03
EV/EBITDA 12 Mo = 11.22
Company: Paramount Gold (PZG)
Levered Free Cash Flow = -22.51M
Basic Key ratios
Percentage Held by Insiders = 4.99
Market Cap ($mil) = 349
Number of Institutional Sellers 12 Weeks = N/A
Growth
Net Income ($mil) 12/2011 = -28
Net Income ($mil) 12/2010 = -15
Net Income ($mil) 12/2009 = -7
EBITDA ($mil) 12/2011 = -28
EBITDA ($mil) 12/2010 = -15
EBITDA ($mil) 12/2009 = -7
Cash Flow ($/sh) 12/2011 = -0.09
Cash Flow ($/sh) 12/2010 = -0.14
Cash Flow ($/sh) 12/2009 = N/A
Sales ($mil) 12/2011 = 0
Sales ($mil) 12/2010 = 0
Sales ($mil) 12/2009 = 0
Performance
Percentage change Price 52 Wks Relative to S&P 500 = -40.77
EPS Growth Q(1)/Q(-3) = 150
Current Ratio 06/2011 = 1.02
Current Ratio 5 Yr A Average1 = 9
Quick Ratio = 0.96
Cash Ratio = 0.87
Interest Coverage 06/2011 = 310.8
Valuation
Book Value Qtr ($/share) 12/2011 = N/A
Book Value Qtr ($/share) 09/2011 = N/A
Book Value Qtr ($/share) 06/2011 = 0.39
Anl EPS before NRI 12/2007 = N/A
Anl EPS before NRI 12/2008 = N/A
Anl EPS before NRI 12/2009 = N/A
Anl EPS before NRI 12/2010 = N/A
Anl EPS before NRI 12/2011 = -0.08
Price/ Book = 6.52
Price/ Cash Flow = N/A
Price/ Sales = 1074.04
EV/EBITDA 12 Mo = -11.93
P/E/G F1 = N/A
Note
This play would fall under the mediocre category.
Company : Atlas Pipln Ptr (APL)
Levered Free Cash Flow = -118.20M
Basic Key ratios
Percentage Held by Insiders = 0.37
Market Cap ($mil) = 1984
Growth
Net Income ($mil) 12/2011 = 289
Net Income ($mil) 12/2010 = 276
Net Income ($mil) 12/2009 = 60
EBITDA ($mil) 12/2011 = 409
EBITDA ($mil) 12/2010 = 128
EBITDA ($mil) 12/2009 = 171
Cash Flow ($/share) 12/2011 = 3.01
Cash Flow ($/share) 12/2010 = 0.87
Cash Flow ($/share) 12/2009 = 1.79
Sales ($mil) 12/2011 = 1303
Sales ($mil) 12/2010 = 936
Sales ($mil) 12/2009 = 904
Dividend history =
Dividend Yield = 5.95
Dividend Yield 5 Yr Average 0909/2011 = 9.48
Annual Dividend 12/2011 = 1.78
Annual Dividend 12/2010 = 0.35
Forward Yield = 5.95
R-squared Div Growth 09/2011 = 0.35
Dividend sustainability
Payout Ratio 09/2011 = 0.77
Payout Ratio 06/2011 = 0.78
Payout Ratio 5 Yr Average 09 09/2011 = 1.79
Change in Payout Ratio = -1.02
Performance
Percentage Change Price 52 Wks Relative to S&P 500 = 23.43
Average EPS Surprise Last 4 Qtr = 168.66
EPS % Change F2/F1 = 83.05
EPS Growth Q(1)/Q(-3) = 10-100.00
5 Yr Historical EPS Growth 09/2011 = 5.98
ROE 5 Yr Average 0909/2011 = 6.98
Return on Investment 09/2011 = 9.37
Return on Investment 06/2011 = 8.31
Debt/Total Capitalization 5 Yr Average 09/2011 = 49.19
Current Ratio 09/2011 = 0.77
Current Ratio 06/2011 = 0.83
Current Ratio 5 Yr Avg = 0.73
Quick Ratio = 0.77
Cash Ratio = 0.1
Interest Coverage 09/2011 = 0.26
Interest Coverage 06/2011 = 9.47
Valuation
Book Value Qtr ($/sh) 09/2011 = 23.06
Book Value Qtr ($/sh) 06/2011 = 23.71
Annual EPS before NRI 12/2007 = 1.76
Annual EPS before NRI 12/2008 = 2.41
Annual EPS before NRI 12/2009 = -0.13
Annual EPS before NRI 12/2010 = -0.65
Annual EPS before NRI 12/2011 = 1.3
Price/ Book = 1.61
Price/ Cash Flow = 12.28
Price/ Sales = 1.52
EV/EBITDA 12 Mo = 6.13
Q1 Std Dev/ Consensus = 0.26
R-squared EPS Growth 09/2011 = 0.01
Number of Anlayst in Consensus Q3 = 4
Conclusion
Long-term investors would be best served by waiting for a strong pullback before committing funds to this market.
EPS, Price, EPS surprise charts obtained from zacks.com. Dividend history charts sourced from dividata.com. Free cash flow yield, income from continuing operations and revenue growth charts sourced from Ycharts.com. Earnings estimates and growth rate charts for sourced from dailyfinance.com. A major portion of the historical data used in this article as obtained from zacks.com.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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