In our recently published research paper (Incorporating Free Cash Flow Yield in Dividend Analysis), we divided the S&P 500 member stocks into quintiles based
on free cash flow yield.
Not exact matches
Finally, we screen for return
on invested capital (ROIC), one of the most widely - used factors, and
free cash flow yield.
The materials and energy sectors also scored notably well
on earnings growth, while energy's
free -
cash -
flow yield and return
on equity remain challenged.
Just like the other stocks
on this list, American Express has generated over $ 14.9 billion in
free cash flow over the past five years and currently earns a 6 %
free cash flow yield.
A forward P / E ratio of 16.5 times earnings isn't anything to write home about, even if the stock trades
on a forward
free cash flow - to - enterprise value (market cap plus net debt)
yield of 5.2 %.
With fundamental results coming in largely as expected during the year, we believe the stock price decline was primarily due to industry and market pressures
on its peer group, and we believe the current high
free cash flow yield makes the stock an attractive investment.
Figure 2 compares First Solar and SunPower
on the basis of
free cash flow yield over the past decade.
Put a 6 percent
yield on that theoretical
free cash flow — still less than Royal Dutch Shell Plc's
yield — and Aramco's implied valuation drops to $ 1.3 trillion.
When diving into the valuation ratios based
on trailing earnings and
free cash flow, the energy sector offered a choice was between E&P and Integrated oil companies that had sustained large drops in their earnings, and Refiners who had an earnings
yield close to 12 %, and had seen an uptick in earnings.
On pages 74 - 75 he gives a strained view of margin of safety, comparing
free cash flow yields to the 10 - year Treasury
yield.
With stocks, if you focus
on companies with around 10 %
free cash flow yields and highly predictable, sustainable franchises, you protect your downside and set yourself up for nice capital appreciation.
FCF
yield The
free cash flow (FCF)
yield is a way to decide whether a firm is cheap or expensive based
on its
cash flows rather than, say, its earnings.
We believe the focus of the sales and marketing efforts
on diversifying the company's customer base is
yielding results and should allow for the continued generation of substantial
free cash flow from operations.
Since the amount of dividends paid is shown
on a company's
cash flow statement, another accepted measure is to use
cash flow related fundamentals, such as
free cash flow yield, to provide additional insight
on company's financial condition.
It's cheap (taking the midpoint of its guidance it's
on less than 5.5 x earnings), it has got a strong balance sheet (net debt / EBITDA was 0.8 x at end - 2010), it has a stable business model (it is the biggest distributor of fruit and vegetables in Europe, with a reach that enables it to supply multiples across different countries), it has a decent dividend
yield (circa 4.5 %) and it is spitting out
cash (
free cash flow for the twelve months ended 30 June 2011 amounted to $ 29.0 m — that's nearly a quarter of the group's market cap).
You can retire comfortably in 10 years with 10 +
free - and - clear rental homes when you approach this business with a sensible plan of buying houses at 10 % below fair market value with 10 % down payment and 10 % +
yield on your investment (the author's 10/10/10 plan), and wisely reinvesting
cash flow, equity gains, and selling the loser houses to pay off the debt of the winners.