3 Best Stocks That Are Cash Cows – The Fool Motley

A company that consistently generates strong free cash flow can use the profits from its business activities to develop new products, pay down debt, or return cash to shareholders in the form of dividends or redemptions. Thus, while it is not uncommon for young companies to see impressive stock gains even though the activities are not yet profitable, it is not surprising that the performance of the CLF tends to have a strong correlation with long-term shareholder return.

Investors with an immediate buy-in mentality can look at historical and free cash flow trends to become familiar with actions that are worthy of long-term ownership. In this spirit, Apple (NASDAQ: AAPL), Disney (NYSE: DIS), and AT & T (NYSE: T) Three companies produce impressive cash flows, report income to shareholders and trade to non-prohibitive valuations – features that suggest that they could be winners for your portfolio.

Source of the image: Getty Images.

Apple

Data Sources: Apple; Yahoo! Finance, Dividend.com. The free cash flow and the payout ratio of the FCFs are based on the results of the last 12 months and annualized forward payments. Table by author.

The remarkable strength of the Apple brand in the field of consumer technology has allowed it to obtain premiums at an impressive price and to capture the lion's share of profits in the space of smartphones. A recent slowdown in the company's range of handsets has softened the company's near-term outlook, but Apple's business remains strong and long-term business remains substantial, with equity trades trading around 16 times the expected benefits of this year.

Even with the decline in iPhone sales, the strong growth of Apple's high-margin services business has dampened the shock in 2018. The momentum for services and other areas of the business has been slow. The company, combined with ongoing share repurchases, has helped increase free cash flow per share by about 19% last year.

Apple's stellar cash flow allowed it to build up a huge war chest with about $ 130 billion in cash without any debt, even after major stock repurchase efforts. While inequality in the handset business is likely to dampen FCF growth in the near term, it is possible that iPhone sales could be revitalized with the introduction of 5G and other more substantial upgrades. The company also continues to scratch the surface of markets such as wearable equipment, connected home technologies and software services, in addition to its rapidly growing service segment. With a fast-growing dividend, a low payout ratio, an excellent balance sheet, and ways to kick-start its growth drivers, it's too early to count on Apple.

AT & T

Data sources: AT & T, Yahoo! Finance, Dividend.com. The free cash flow and the payout ratio of the FCFs are based on the results of the last 12 months and annualized forward payments.

AT & T operates the second largest mobile wireless network in the United States, the largest pay-TV service through its subsidiary DirecTV and the largest wireline service provider in the country. The saturation in the wireless market, the trends in the reduction of the number of TVs and the worsening of the wireline business are all challenges, but the company continues to generate high margins and generate revenue streams. impressive cash even under pressure. And luckily, AT & T is not immobile.

The company's business is advancing with the development of entertainment through the acquisition of Time Warner. The combination of its new strength of content with DirecTV and the AT & T mobile wireless network should create benefits for video streaming directly on phones and tablets. It should be noted that the telecommunications sector tends to require a lot of capital and that AT & T will have to spend a lot of money to roll out the video and technology initiatives of 5G network likely to require a lot of capital. fuel its next stages of growth. However, it offers an excellent dividend and underestimated growth prospects and is trading at just 8.5 times the expected earnings this year.

Disney

Data sources: Disney, Yahoo! Finance, Dividend.com. The free cash flow and the payout ratio of the FCFs are based on the results of the last 12 months and annualized forward payments.

Disney has an unparalleled selection of high-value multimedia properties, and this advantage has become even more pronounced after the signing of its $ 71-billion contract for the acquisition of Twenty-First Century Fox franchises, studios and chains. House of the Mouse has also set the standard for the development of entertainment resources across all business channels, and appears well-positioned to maintain a leading position in the entertainment industry while continuing to put its incredible catalog of franchises in the service of its main activities and to develop new offers. like streaming.

The company's media networks have been under pressure due to cable reduction and rising content costs, but the industry still has impressive activity, accounting for $ 6.6 billion in revenue from the company's revenue stream. operating the company, which stood at $ 15.7 billion last year. The good performance of the company's parks, resorts and cinemas is helping to slow the television market. The stock continues to show substantial upside potential, trading at around 16 times expected earnings for the year.

Keith Noonan owns shares in AT & T and Walt Disney. The Motley Fool owns shares and recommends Apple and Walt Disney. The Motley Fool offers the following options: Long Calls from $ 150 to January 2020 for Apple and short calls from $ 155 to January 2020 on Apple. Motley Fool has a disclosure policy.