With uncertainty gripping the financial markets, investors are focusing more on investments that yield dividends in contrast to speculating on whether a stock is going to rise or fall in price. In coming up with this list we screened for the following factors:
1) A dividend payment history of four or more years, or three years or more of increasing the yearly dividend. The only exception is SandRidge Permian Trust (PER) and it was included on the list because it has the potential to offer investors a steady stream of income for years to come. This was recently demonstrated when it raised its dividend payment by 6 cents from 66 to 72 cents; an increase of 9%.
2) Operating cash flow (OCF) of $150 million or more. OCF 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. PER and BlackRock Kelso Capital Corporation (BKCC) are the two exceptions. The reason PER was included has already been discussed under point 1. BKCC was included because it has managed to increase its net income for three years in a row.
3) A Yield of 6% or higher.
4) Quarterly revenue growth rate (yoy) of 30% or higher or quarterly earnings growth (year-over-year) rate of 30% higher.
Levered free cash flow data is provided on all the companies. 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 small 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. Earnings can often be manipulated via accounting gimmicks, but it’s much harder to fake cash flow. As a result, many investors feel that free cash flow (FCF) provides a better picture of a company’s ability to generate cash. Negative FCF numbers do not necessarily bode badly for the company in question, for it could be a sign that a company is making large investments, which could lead to a big payoff in the future.
Out of the seven companies listed below we would favor Buckeye Partners (BPL) as it has a long history of increasing dividends and Telecom Italia (TI) as it is trading significantly below book value and its free cash flow rate is improving. Value players might also be interested in the four stocks we covered that are trading significantly below book value in our latest article, Four Magnificent Value Plays With Dividends.
| Stock | Dividend | Market Cap | Forward PE | EBITDA (ttm)6 | Qtrly Revenue Growth (yoy): | Operating margins | Revenue | OPC |
PER | 15% | 2.3B | 8. | ----- | 41% | 93% | 71M | ------ |
LINE | 7.40% | 6.6B | 17 | 1.10B | 32.8% | 92% | 792M | 573M |
BPL | 6.5% | 5.97B | 18.38 | 427M | 52% | 7.3% | 4.46B | 178.43 |
CMLP | 6.10 | 1.17B | 33 | 102.9M | 93% | 41% | 177M | 71M |
TI | 10.0% | 20.7B | 15 | 16.35B | 12.60% | 23.3% | 39.8% | 11.54B |
NS | 8.1% | 3.48B | 16 | 500M | 60.3% | 5.76% | 5.84B | 283M |
BKCC | 12% | 639M | 8.48 | ---- | 34% | 66 | 125M | -132M |
OPC= Operating cash flow B= billion M= million
SandRidge Permian Trust (PER)
SandRidge Permian Trust focuses on acquiring and holding royalty interests in oil and natural-gas properties located in the Permian Basin in Andrews County, Texas. It has a market cap of $2.3 billion, a strong quarterly earnings growth rate of (yoy) of 42.8%, a quarterly revenue growth rate of (yoy) of 41%, and a profit margin of 92.7%.
PER is actively working 509 producing wells in the Permian Basin, Texas. It is also obligated to drill another 888 wells by the end of March 2015. Roughly, 70% of its oil production is hedged until March 2015 at a price of $101 a barrel. On the positive side, for the next three years PER will not be affected by the volatile swing in oil prices. The downside is that if oil trades for an extended period above $101, it will not be in a position to garner most of these additional gains. On the 28th of October, PER suddenly announced it was going to raise it dividend payment by 9% (6 cents) from $0.66 to $0.72. This is definitely a move in the right direction as it sends a signal to investors that management has their interests at heart, especially since this is a new trust.
- ROE 9.29%
- Return on assets 6.27%
- Quarterly earnings growth (yoy) 42%
- Quarterly revenue growth rate 41%
- Total debt 0.00
- 200 day moving average $18.51
- Dividend rate $1.57
- Payout ratio 70%
- Dividend growth rate 3 year average N/A
- Consecutive dividend increases 0 years
- Paying dividends since 2011
- Total return last 3 years N/A
- Total return last 5 years N/A
Linn Energy, LLC (LINE)
Linn Energy, LLC, an independent oil and natural-gas company, engages in the development and acquisition of oil and gas properties in the United States. LINE has a levered free cash flow of $189 million and a price/sales value of 8.41 and an incredible quarterly earnings growth (yoy) rate of 20,117.90%.
Insider Action
There were several purchases in the month of August. The most notable purchases were made by Director S. Jacobs. Director S. Jacobs purchased 25,000 shares directly and indirectly in August at $32.76-$34.00 per share. The full list of insider transactions can be accessed here.
- ROE 11.94%
- Total debt $3.12B
- 200 day moving average $ 37.46
- Book value $21.00
- Dividend yield 5 year Average 11.2%
- Dividend rate $ 2.76
- Payout ratio 169%
- Dividend growth rate 5 year average 22.45%
- Consecutive dividend increases 1 years
- Paying dividends since 2006
- Total return last 3 years 250%
- Total return last 5 years 65%
Buckeye Partners LP (BPL)
Buckeye Partners LP has a market cap of $ 5.82 billion and enterprise value of $ 8.5 billion. The total cash Buckeye has amounts to $0.17 per share. Buckeye Partners has a levered free cash flow of -$63 million and a price/sales value of 1.31. Out of a possible five stars, we would give Buckeye Partners LP a four-star rating.
- Percentage held by Insiders 11.88%
- ROE 5.06%
- Quarterly earnings growth (yoy) N/A
- Total debt $2.75 billion
- 200 day moving average $ 63.42
- Book value $25.20
- Dividend yield 5 year Average 7.10%
- Dividend rate $4.03
- Payout ratio 209
- Dividend growth rate 5 year average 5.88
- Consecutive dividend increases 15 years
- Paying dividends since 1990
- Total return last 3 years 119
- Total return last 5 years 75
Crestwood Midstream Partners LP (CMLP)
It has enterprise value of $1.65 billion and price/sales value of 6.62. It has a positive levered free cash flow rate of $ 6 million and quarterly revenue growth (yoy) of 93%. Insiders have a 64% stake in the company. Its three year total return is a very strong 396%.
- ROE 11.63%
- Return on assets 6.2%
- Total debt $435M
- 200 day moving average $26.91
- Book value $11.42
- Dividend yield 5 year Average N/A
- Dividend rate $1.81
- Payout ratio 181%
- Dividend growth rate 3 year average 11.27%
- Consecutive dividend increases 3 years
- Paying dividends since 2007
- Total return last 3 years 396%
- Total return last 5 years N/A
Telecom Italia SPA (TI)
It has enterprise value of $67 billion, price/sales value of 0.55 and a strong levered free cash flow of $509 million. It has revenue growth (yoy) of 12%, quarterly earnings growth rate (yoy) of 32.7%, and it has been paying dividends since 2005 TI is trading roughly $8 below value.
Corporate bond research firm GimmeCredit on Thursday upgraded its credit score on Telecom Italia to stable from deteriorating, noting that free cash flow generation has improved, although leverage is still high compared to competitors but appears poised to drop further. Here’s more from GimmeCredit analyst Dave Novosel: "Revenue growth in Brazil and the inclusion of Argentina have been sufficient to more than offset the domestic weakness. However, the Italian economy remains moribund, recent austerity measures may not help, and the eurozone is still unstable. Free cash flow is improving, allowing the company to reduce debt."
With improving free cash flow, investors may want to take a look at Telecom Italia stock, which is trading at $11.31 with a dividend yield of 5.70%.
TI has strong support at $10.00. Aweekly close below 10 would indicate that it could put in a series of new lows before a bottom is in place. A weekly close above 12.00 will signify that there is a strong chance it could test the $14 plus ranges before pulling back.
- ROE 2.79%
- Return on assets 5.03%
- Total debt $51.9B
- 200 day moving average $ 12.01
- Book value $17.94
- Dividend yield 5 year Average 5.4%
- Dividend rate $0.53
- Dividend growth rate 3 year average 27.98%
- Consecutive dividend increases 0 years
- Paying dividends since 2005
- Total return last 3 years -7%
- Total return last 1 year -8%
NuStar Energy L.P. (NS)
NuStar Energy L.P. engages in the storage, and transportation of petroleum products primarily in the United States, Canada, the Netherlands, St. Eustatius in the Caribbean, the United Kingdom, and Mexico. It has an enterprise value of $5.99 billion and price/sales value of 0.60. It has strong quarterly revenue growth (yoy) of 60%, a total return of 60% for the past three years, a five year dividend growth rate of 4.19%, and has been paying dividends since 2001. NS has a levered free cash flow rate of -$49 million. Out of a total five stars we would assign NS 3.5 stars.
- ROE 9.32%
- Return on assets 3.8%
- Total debt $2.57B
- 200 day moving average $ 58.64
- Book value $37.98
- Dividend yield 5 year Average 7.8%
- Dividend rate $4.34
- Payout ratio 138%
- Dividend growth rate 5 year average 4.19%
- Consecutive dividend increases 9 years
- Paying dividends since 2001
- Total return last 3 years 60%
- Total return last 5 years 32%
BlackRock Kelso Capital Corporation (BKCC)
BKCC has a negative operating and levered cash flow rate of -$7.7 million, but it has managed to increase its net income nicely over the past three years. In 2008 net income was negative $150 million, in 2009 it rose to $67 million and in 2010 it stood at $71.5 million. BKCC's upgrade/downgrade history can be accessed from here.
Positive Developments
The company purchased 200,000 shares in March at $10 per share for a total cost of $2 million.
Director B. Harris purchased 9000 shares in March at$ 9.64 a share for a total investment of $86.760. In May he purchased another 4000 shares for a total investment of roughly $40,000. The full list of transactions can be accessed here.
- ROE 10.07%
- Return on assets 5.08%
- Quarterly earnings growth (yoy) -20%
- Quarterly revenue growth rate 34%
- Total debt $317 million
- 200 day moving average $8.57
- Book value $9.75
- Dividend yield 5 year Average N/A
- Dividend rate $1.10
- Payout ratio 158%
- Dividend growth rate 5 year average 0.00%
- Consecutive dividend increases 1 years
- Paying dividends since 2007
- Total return last 3 years 28%
- Total return last 5 years N/A
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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