When scouting for stocks, a standard metric that comes into focus is free cash flow. In its simplest form, free cash flow is the total cash a company keeps after operating costs and capital expenditures.
Free cash flow strength allows for more growth opportunities, a higher potential for share buybacks, stable dividend payouts, and the ability to wipe out any debt easily.
For those interested in cash-generating machines, three companies – Apple AAPL, UnitedHealth UNH, and Broadcom AVGO – all fit the criteria.
Let’s take a closer look at each.
Apple
Apple is often labeled the ‘King’ of free cash flow for understandable reasons; the company generated a mighty $25.6 billion in free cash flow throughout its latest quarter. And over the last trailing twelve-month, the tech titan has generated nearly $100 billion of free cash flow.
Image Source: Zacks Investment Research
Apple shares aren’t cheap, with the current 31.6X forward earnings multiple sitting well above the 24.7X five-year median. Still, investors have had little issue forking up the premium given the company’s favorable standing, with AAPL shares up more than 40% year-to-date.
Image Source: Zacks Investment Research
The tech titan bounced back in its latest release and delivered better-than-expected results; Apple penciled in a solid 5.5% EPS beat and reported revenue nearly 2% above expectations. The market cheered on the results, with shares finding plenty of buyers post-earnings.
Image Source: Zacks Investment Research
UnitedHealth
UnitedHealth provides a wide range of healthcare products and services, including health maintenance organizations (HMOs), point of service plans (POS), and preferred provider organizations (PPOs). The health titan reported $15.6 billion in free cash flow in its latest quarter, jumping a sizable 220% from the year-ago period.
The company has also shown a commendable commitment to increasingly rewarding shareholders, boasting a 15% five-year annualized dividend growth rate. UNH shares yield 1.6% annually paired with a sustainable payout ratio sitting at 29% of its earnings.
Image Source: Zacks Investment Research
Further, the company is forecasted to continue its steady growth, with estimates calling for 12% earnings growth in its current fiscal year and a further 22% in FY24. Revenue growth is apparent also, expected to climb 12.6% in FY23 and 6.4% in FY24.
Image Source: Zacks Investment Research
Broadcom
Broadcom is a premier designer, developer, and global supplier of a broad range of semiconductor devices. The company has enjoyed favorable earnings estimate revisions across the board as of late, indicating optimism among analysts.
Image Source: Zacks Investment Research
Similar to UNH, Broadcom has consistently grown its dividend payout, boasting an impressive 20% five-year annualized dividend growth rate. Shares currently yield 2.1% annually, more than double the Zacks Computer and Technology sector average.
Image Source: Zacks Investment Research
And to top it off, the company has been a big-time earnings performer, exceeding earnings and revenue expectations in each of its last ten quarters. Just in its latest release, AVGO penciled in a 2% EPS beat and reported revenue modestly above expectations.
Bottom Line
When scouting potential portfolio additions, free cash flow is undoubtedly a metric worth serious attention.
A company displaying free cash flow strength has freedom for growth opportunities, can consistently shell out dividends, and wipe out debt easily.
And all three companies above – Apple AAPL, UnitedHealth UNH, and Broadcom AVGO – generate substantial cash.
Free Report: Top EV Battery Stocks to Buy Now
Just-released report reveals 5 stocks to profit as millions of EV batteries are made. Elon Musk tweeted that lithium prices have gone to “insane levels,” and they’re likely to keep climbing. As a result, a handful of lithium battery stocks are set to skyrocket. Access this report to discover which battery stocks to buy and which to avoid.
Apple Inc. (AAPL) : Free Stock Analysis Report
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
Broadcom Inc. (AVGO) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
