Market Overview

These 7 Cash Cows Produce Money Like Milk


Investing is great. You can spend money on stocks and if your bet goes wild you will make a lot of money. That's a great dream for all of us and I can tell you that it's possible to become an investment Pro.

I'm a guy who looks steadily at stocks and try to find attractive investment stories and cheap stocks in order to make a good return.

I'm not short term focused; plan to hold most of my stocks over years and decades. Due to my long investment horizon, I need good companies that grow over time their business, pay me good dividends, and grow dividends as well.

But the most important question is that the corporate can grow without taking new investors on board. Those actions will grow outstanding shares in general and bring pressure on earnings per share growth.

I look for companies have generated high free cash flows, companies with a business model that don't need much money to keep their operational business alive.

I've tried to find some new ideas with an old screener who has a quick option; it's called the reinvestment rate. I don't know how they calculate this ratio but when I sort the list of large with high margins by this ratio, companies with low investment spending on their operational cash flow come first.

I talk about companies with a high scalable business, stocks with the lowest need of capital expenditures. First you might think about Facebook or all the great tobacco companies. For sure those shares generate big free cash flows.

But there are much more companies, I talk about technology stocks and money platforms. The key is here the platform business. Each new customer doesn't cause new costs and bring free cash into the corporate. That's a great idea of making money.

The only item to care about is market entry barriers. Can competitors easily enter and push down margins? If yes, keep your fingers away of buy only at low multiples.

Below are seven detailed stocks with such a great business model that produce money like milk. I will follow up with 8 additional stocks. That's only a selection; there are much more companies available. Some of them pay no dividends other a low one but dividend is not the key.

Most of the presented results come from the tech and financial space.

7 Dividend Stocks with strong free cash flows are...

#1 Reynolds American (NYSE:RAI) has a market capitalization of $31.32 billion. The company employs 5,200 people, generates revenue of $8,236.00 million and has a net income of $1,718.00 million. Reynolds American's earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $3,267.00 million. The EBITDA margin is 39.67 percent (the operating margin is 38.03 percent and the net profit margin 20.86 percent).

RAI has a 2013 cash flow from operations of $1.3 billion while CAPEX amounted to $113 million.

Financial Analysis: The total debt represents 33.11 percent of Reynolds American's assets and the total debt in relation to the equity amounts to 98.68 percent. Due to the financial situation, a return on equity of 32.96 percent was realized by Reynolds American. Twelve trailing months earnings per share reached a value of $2.91. Last fiscal year, Reynolds American paid $2.48 in the form of dividends to shareholders.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 20.28, the P/S ratio is 3.80 and the P/B ratio is finally 6.14. The dividend yield amounts to 4.55 percent and the beta ratio has a value of 0.47. - See #2 - #5 here: These 7 Dividend Cash Cows Produce Money Like Milk (Part I)

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.


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