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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Apple Inc. (AAPL) : Free Stock Analysis Report
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
Broadcom Inc. (AVGO) : Free Stock Analysis Report
