Scouting for stocks can sometimes be tiring, especially with so many options out there. However, one common metric investors love to focus on is free cash flow.
Still, what is free cash flow?
Free cash flow is the total cash a company holds onto after paying for operating costs and capital expenditures.
It speaks volumes about a company’s financial health, but in what way?
A healthy free cash flow provides more growth opportunities, a higher potential for share buybacks, stable dividend payouts, and the ability to wipe out any debt with ease.
Three companies – Apple AAPL, Exxon Mobil XOM, and Visa V – boast strong cash-generating abilities. Below is a chart illustrating the year-to-date performance of all three, with the S&P 500 blended in as a benchmark.
Image Source: Zacks Investment Research
Let’s take a closer look at each one.
Exxon Mobil
Exxon Mobil is a U.S.-based oil and gas entity, one of the world's largest publicly traded energy companies.
Rising energy prices have benefited the company significantly; XOM generated $17.1 billion in free cash flow throughout its latest quarter, growing an impressive 30% year-over-year.
Image Source: Zacks Investment Research
In addition, the company rewards its shareholders via its annual dividend, currently yielding a solid 3.2% paired with a sustainable payout ratio sitting at 26% of its earnings.
Image Source: Zacks Investment Research
Apple
We’ve all become familiar with Apple, the mega-cap technology giant that’s been a portfolio staple for some time now.
The company generated an impressive $30.2 billion in free cash flow throughout its latest quarter, growing 45% sequentially.
Image Source: Zacks Investment Research
In addition, AAPL shares currently trade at a 24.9X forward earnings multiple, below the steep highs of 31.3X in 2022 and modestly above the Zacks Computer and Technology sector average.
Image Source: Zacks Investment Research
Visa
A multinational financial services company, Visa facilitates electronic funds transfers through Visa-branded debit, credit, and prepaid cards.
In the company’s latest release on January 26th, Visa reported free cash flow of nearly $4 billion, slipping marginally year-over-year in the face of a harsh economic environment.
Image Source: Zacks Investment Research
While the company’s 0.8% annual dividend is below the Zacks Finance sector average, Visa’s 15.3% five-year annualized dividend growth rate helps to pick up the slack in a big way.
Image Source: Zacks Investment Research
In addition, Visa has an impressive earnings track record, exceeding earnings and revenue estimates in 12 consecutive quarters.
Just in its latest release, the company registered a nearly 9% EPS beat and reported revenue 3.4% above expectations. Below is a chart illustrating the company’s revenue on a quarterly basis.
Image Source: Zacks Investment Research
Bottom Line
Companies with strong cash-generating abilities are well-established and carry highly-successful business operations, undoubtedly perks that any investor looks for.
And all three companies above – Apple AAPL, Exxon Mobil XOM, and Visa V – have little issue generating cash.
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Free: See Our Top Stock and 4 Runners Up >>Apple Inc. (AAPL) : Free Stock Analysis Report
Visa Inc. (V) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
