In this Motley Fool series, we rank three related stocks on five criteria to determine the best buy.
Today's matchup is a battle among three companies with big dividends: Marlboro maker Altria
Although they are in three distinct industries, each company both entices investors with its income-producting and scares them with possible risks. So by using five short-of-scientific-but-carefully-chosen criteria, let's determine which of these three plays is the best buy (assuming we have to buy one).
Round 1: Balance sheet
From a debt-to-capital standpoint, each is highly levered. Frontier hits 62.4%, Altria hits 74.6%, and Annaly is at 85.2%. Each has its business reasons: Frontier increased its debt (and floated stock) for a huge asset acquisition (think tripling its size) from Verizon. Altria has an almost utility-style tobacco business, so it can justify at least above-market leverage. For mortgage REITs, making money on interest-rate spreads and then leveraging up is the business model. Annaly's assets-to-equity ratio of 7.2 is lower than that of many of its brethren, including American Capital Agency
Round 2: Operations
Not too surprisingly given their leverage, each has put up high returns on equity in the past (Frontier's is recently lower as it digests its Verizon deal, but note that its cash flows greatly outstrip its net income). Altria's brand power is up there with the best brands in the market, and Annaly has been a standout in its relatively young space. Rank: (1) Altria, (2) Annaly, (3) Frontier.
Round 3: Safest bet
This is a tough one. Frontier has operational risk and, like fellow rural-telecom dividend monster Windstream
Round 4: Sexiest bet
Annaly is basically a Wall Street trading desk. That's pretty sexy. Rural telecom ain't sexy, but Frontier may have the nod over Altria, which split off its non-U.S. operations as Philip Morris International
The summary rankings
There you have it. Each company won at least one category, but Altria (the lowest dividend yielder of the three) lands on top, with Frontier and Annaly tied for second, at least based on these five criteria. What do you think? Declare your winner, and then share your thoughts in the comments section below.
Fool contributor Anand Chokkavelu owns shares of Frontier Communications, Philip Morris International, and Altria. You can follow his thoughts on Twitter. The Motley Fool owns shares of Altria Group, Annaly Capital Management, and Philip Morris International. Motley Fool newsletter services have recommended buying shares of Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.