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When investors select additions to their portfolios, a standard metric that comes into focus is free cash flow. In its simplest form, free cash flow is the total amount of cash a company holds onto after paying for operating costs and any capital expenditures.
Free cash flow speaks volumes about a company’s financial health, but in what way? A high free cash flow allows for more growth opportunities, a higher potential for share buybacks, stable dividend payouts, and the ability to wipe out any debt with ease.
A few companies within the S&P 500 have remarkably strong free cash flow, such as Visa (V - Free Report) , Verizon (VZ - Free Report) , and UnitedHealth (UNH - Free Report) .
Below is a year-to-date chart illustrating the share performance of all three companies with the S&P 500 blended in as a benchmark.
Image Source: Zacks Investment Research
Let’s take a closer look at each company’s free cash flow and a few other metrics.
Visa
A multinational financial services company, Visa (V - Free Report) facilitates electronic funds transfers through Visa-branded debit, credit, and prepaid cards. In today’s world, you see their cards in nearly every wallet.
In its latest quarter, Visa’s quarterly free cash flow was reported at a steep $5.1 billion, reflecting a massive 55% uptick from its prior quarter and a sizable 19% Y/Y uptick.
Image Source: Zacks Investment Research
In addition, the company’s growth prospects are definitely worthy of a highlight – for Visa’s current fiscal year, the Zacks Consensus EPS Estimate of $7.40 reflects a stellar 25% Y/Y uptick. And in FY23, V’s bottom-line is projected to tack on an additional 13% of growth.
Image Source: Zacks Investment Research
While the company’s forward P/E ratio of 27.9X is undoubtedly expensive, the value is still well below its five-year median of 30.6X and represents an enticing 6% discount relative to its Zacks Business Services Sector.
Image Source: Zacks Investment Research
UnitedHealth
UnitedHealth (UNH - Free Report) provides a wide range of health care products and services, such as health maintenance organizations (HMOs), point of service plans (POS), preferred provider organizations (PPOs), and managed fee-for-service programs.
UnitedHealth reported quarterly free cash flow of $6.2 billion in its latest print, representing a sizable 30% uptick from the prior quarter and a year-over-year increase of a notable 25%.
Image Source: Zacks Investment Research
Undoubtedly another major positive, the company’s bottom-line is projected to grow at a rock-solid pace; earnings are forecasted to soar a double-digit 15% in FY22 and an additional 13% in FY23.
Image Source: Zacks Investment Research
Furthermore, UNH has been dedicated to rewarding its shareholders – over the last five years, UnitedHealth has upped its dividend payout five times with a five-year annualized dividend growth rate of a substantial 17.6%.
The company’s annual dividend yield of 1.2% is just below its Zacks Medical Sector’s annual yield.
Image Source: Zacks Investment Research
Verizon Communications
Verizon Communications (VZ - Free Report) offers communication services in the form of local phone, long-distance, wireless, and data services.
In Verizon’s Q2, quarterly free cash flow was reported at a sizable $6.1 billion, reflecting a massive 520% uptick from the prior quarter.
Image Source: Zacks Investment Research
In addition to being a cash-generating machine, Verizon shares trade at rock-sold valuation levels, as displayed by its Style Score of an A for Value.
The company’s forward earnings multiple resides at a small 8.4X, nowhere near its five-year median of 11.6X and reflecting a steep 65% discount relative to its Zacks Computer and Technology Sector.
Image Source: Zacks Investment Research
A primary reason why investors love Verizon shares is due to its remarkable dividend metrics, and it’s easy to see why – the company’s annual dividend yields a sizable 5.8% paired with a payout ratio sitting sustainably at 48% of earnings. Furthermore, the company has increased its dividend payout in each of the last five years.
VZ’s annual dividend yield doesn’t even compare to its Zacks Computer and Technology Sector average.
Image Source: Zacks Investment Research
Bottom Line
When scouting out the next addition to a portfolio and keeping tabs on current investments, 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.
It’s a stellar indicator of financial health. All three companies above – Verizon Communications (VZ - Free Report) , UnitedHealth (UNH - Free Report) , and Visa (V - Free Report) – have remarkable free cash flow.
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3 Cash-Generating Machines in the S&P 500
When investors select additions to their portfolios, a standard metric that comes into focus is free cash flow. In its simplest form, free cash flow is the total amount of cash a company holds onto after paying for operating costs and any capital expenditures.
Free cash flow speaks volumes about a company’s financial health, but in what way? A high free cash flow allows for more growth opportunities, a higher potential for share buybacks, stable dividend payouts, and the ability to wipe out any debt with ease.
A few companies within the S&P 500 have remarkably strong free cash flow, such as Visa (V - Free Report) , Verizon (VZ - Free Report) , and UnitedHealth (UNH - Free Report) .
Below is a year-to-date chart illustrating the share performance of all three companies with the S&P 500 blended in as a benchmark.
Image Source: Zacks Investment Research
Let’s take a closer look at each company’s free cash flow and a few other metrics.
Visa
A multinational financial services company, Visa (V - Free Report) facilitates electronic funds transfers through Visa-branded debit, credit, and prepaid cards. In today’s world, you see their cards in nearly every wallet.
In its latest quarter, Visa’s quarterly free cash flow was reported at a steep $5.1 billion, reflecting a massive 55% uptick from its prior quarter and a sizable 19% Y/Y uptick.
Image Source: Zacks Investment Research
In addition, the company’s growth prospects are definitely worthy of a highlight – for Visa’s current fiscal year, the Zacks Consensus EPS Estimate of $7.40 reflects a stellar 25% Y/Y uptick. And in FY23, V’s bottom-line is projected to tack on an additional 13% of growth.
Image Source: Zacks Investment Research
While the company’s forward P/E ratio of 27.9X is undoubtedly expensive, the value is still well below its five-year median of 30.6X and represents an enticing 6% discount relative to its Zacks Business Services Sector.
Image Source: Zacks Investment Research
UnitedHealth
UnitedHealth (UNH - Free Report) provides a wide range of health care products and services, such as health maintenance organizations (HMOs), point of service plans (POS), preferred provider organizations (PPOs), and managed fee-for-service programs.
UnitedHealth reported quarterly free cash flow of $6.2 billion in its latest print, representing a sizable 30% uptick from the prior quarter and a year-over-year increase of a notable 25%.
Image Source: Zacks Investment Research
Undoubtedly another major positive, the company’s bottom-line is projected to grow at a rock-solid pace; earnings are forecasted to soar a double-digit 15% in FY22 and an additional 13% in FY23.
Image Source: Zacks Investment Research
Furthermore, UNH has been dedicated to rewarding its shareholders – over the last five years, UnitedHealth has upped its dividend payout five times with a five-year annualized dividend growth rate of a substantial 17.6%.
The company’s annual dividend yield of 1.2% is just below its Zacks Medical Sector’s annual yield.
Image Source: Zacks Investment Research
Verizon Communications
Verizon Communications (VZ - Free Report) offers communication services in the form of local phone, long-distance, wireless, and data services.
In Verizon’s Q2, quarterly free cash flow was reported at a sizable $6.1 billion, reflecting a massive 520% uptick from the prior quarter.
Image Source: Zacks Investment Research
In addition to being a cash-generating machine, Verizon shares trade at rock-sold valuation levels, as displayed by its Style Score of an A for Value.
The company’s forward earnings multiple resides at a small 8.4X, nowhere near its five-year median of 11.6X and reflecting a steep 65% discount relative to its Zacks Computer and Technology Sector.
Image Source: Zacks Investment Research
A primary reason why investors love Verizon shares is due to its remarkable dividend metrics, and it’s easy to see why – the company’s annual dividend yields a sizable 5.8% paired with a payout ratio sitting sustainably at 48% of earnings. Furthermore, the company has increased its dividend payout in each of the last five years.
VZ’s annual dividend yield doesn’t even compare to its Zacks Computer and Technology Sector average.
Image Source: Zacks Investment Research
Bottom Line
When scouting out the next addition to a portfolio and keeping tabs on current investments, 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.
It’s a stellar indicator of financial health. All three companies above – Verizon Communications (VZ - Free Report) , UnitedHealth (UNH - Free Report) , and Visa (V - Free Report) – have remarkable free cash flow.