5 Stocks That Generate the Highest Free Cash Flow Yield
There are many metrics Wall Street analysts use when breaking down a stock’s value. The common ones of course are earnings, revenue, sales, margins and other important benchmarks. One that many like is free cash flow yield, which is calculated by taking the free cash flow per share divided by the share price. The higher the number, the more attractive the investment.
In a new research note, a Jefferies analyst combined the highest free cash flow yield with at least 10% return on invested capital and 6% return on assets over the past 10 years. This screen produced 14 outstanding stocks, and we focus on the five with the highest free cash flow yield: Western Digital Inc. (NASDAQ: WDC), Intel Corp. (NASDAQ: INTC), Cisco Systems Inc. (NASDAQ: CSCO), Oracle Corp. (NASDAQ: ORCL) and Emerson Electric Co. (NYSE: EMR).
This top tech company is a leader in the total addressable hard disk drive (HDD) market at a very strong 43%, and it also sports a very impressive 7.89 free cash flow yield. Western Digital attributed much of the gain in revenue growth in recent quarters to the consumer electronics/gaming unit, which saw the biggest upside in the fiscal fourth quarter, shipping 10.9 million units, up 67% year over year. This could help temper the current PC decline that is hurting some tech companies.
While most on Wall Street acknowledge that some believe that cloud data centers are being built using solid-state drives (SSD) and NAND flash memory, the vast majority of storage in the public cloud is stored on traditional HDDs, a positive for top companies like Western Digital in the space.
Western Digital investors are paid a 2% dividend. The Thomson/First Call consensus price target for the stock is $119.42. Shares closed Friday at $99.75.
Intel was recently highlighted as one of the companies having among the highest shareholders cash returns at approximately 8%. This goes along with any outstanding free cash flow yield of 7.63%. The iconic chip giant had a stellar 2014 on the tailwind from continued PC and notebook sales, but it has suffered this year as PC sales have slowed. The stock has underperformed the S&P 500 year to date.
Intel warned first-quarter earnings and forward guidance would be less than expected, and it delivered just that earlier this month. The stock has turned up since and is offering patient investors a solid entry point.
Intel investors are paid an outstanding 3% dividend. The consensus target is posted at $34.95. Shares closed trading on Friday at $32.08.