There are several reasons to seek out high-cash-flow stocks. In the simplest terms, companies that generate strong cash flow can pay – and increase – dividends, develop new products and buy back shares among other things. Free cash flow is the cash a company has left over even after paying for things such as capital expenditures and dividend payments. In other words, the company is “free” to use this cash for whatever they need to use it for.
But like many other things, it’s important to put free cash flow in context. Some companies generate free cash flow because they have stopped growing. While that may be okay for income-oriented investors, most dividend investors want to maximize their total return. The seven stocks on this list are high cash flow stocks that are also profitable stock investments.
Apple (NASDAQ:AAPL) is up about 43% in 2023. It’s a nice reward for investors who piled into the stock when it was trading under $130 in Dec. 2022. Even now, Apple continues to be a polarizing stock. In fact, the company, well-known for its iconic products, such as the iPhone, remains an important source of revenue. But the company is much more than the iPhone. And the combination of those products and services has turned Apple into a cash-generating machine. As of June 2023, estimates have the company generating $163 billion of cash every day. Much of this becomes free cash flow. In the last two years, Apple’s FCF in 2022 was $92.95 billion a gain of over 57% in two years. In 2023, the company’s FCF is projected to grow an additional 23% to $115 billion. And by 2030, free cash flow will top $203 billion.
Broadcom (NASDAQ:AVGO) is another one of the high cash flow stocks that is one of the market’s best-performing stocks. AVGO stock is up 58% as the entire chip sector is recovering after leading the market downturn in 2022.
Demand for semiconductors remains strong, and the emergence of artificial intelligence applications will fuel future growth. But the base case for Broadcom is a little simpler. The company recently announced a partnership with Apple that will ensure continued revenue growth and earnings growth. The company’s strong profit margins are already fueling free cash flow growth which is expected to remain in the $17 to $18 billion range between now and 2030.
AVGO stock has a forward P/E ratio of around 23x earnings. That’s not exactly cheap, but investors get an attractive dividend that has a yield of 2.08% and an annual payout of $18.40 per share. Plus the company has increased its dividend in each of the last 13 years.
If you could only pick one heavy cash flow energy stock, you can’t do much better than Chevron (NYSE:CVX). Chevron’s free cash flow topped $21 billion in 2022. And it’s expected to grow at an average of 7.14% in the next eight years. As one of the “big oil” stocks, Chevron is out of favor with many investors. And it’s also drawing the ire of lawmakers because of the company’s “windfall” profits. However, CVX shareholders certainly appreciate the company’s focus on providing value to its shareholders with its share buybacks and a dividend that currently has a yield of 3.82%.
And in this time of economic uncertainty, CVX stock is undervalued with a P/E ratio of just over 7x earnings. The company has also taken steps to reduce its debt which means that more buybacks and dividend growth are a near certainty.
Caterpillar (NYSE:CAT) shareholders have been among the biggest beneficiaries of the current market rally. The stock has erased a 30% loss for the year to being and is now posting a small gain.
With more infrastructure money continuing to flow into the economy, the stock has room to run. Even with the recent run-up CAT stock is attractively valued at just 13x forward earnings. Plus, the company is a dividend aristocrat having increased its dividend in each of the last 30 consecutive years. In terms of free cash flow, Caterpillar doesn’t have the eye-popping numbers of some of the stocks on this list. But for investors who are looking for a safe haven stock, Caterpillar is a strong choice. The company’s FCF is expected to remain in the range of $7 to $8 billion, which will be more than enough to support the total return on CAT stock.
AbbVie (NYSE:ABBV) is one of the first names to come to mind when you think about high-cash-flow stocks. Even though the company’s free cash flow will be lower with declining revenue from Humira, it’s still expected to remain in the mid to upper $20 billion range between now and 2030.
At the moment, ABBV is trading near its 52-week low. It has a forward P/E ratio of just over 12x. Both make a compelling case for bulls, especially when we factor in their yield of 4.27%. AbbVie is a dividend king having increased its dividend for 51 consecutive years. Moving forward, the company is facing massive biosimilar competition for Humira in the United States. Fortunately, the company has created a patent thicket around Humira which will protect the drug for certain indications. Better, the real protection for AbbVie comes from two newer drugs, Rinvoq and Skyrizi which are helping to make up for Humira’s lost revenue.
Pfizer (NYSE:PFE) was one of the best-performing stocks in 2021 and most of 2022. Over the last 18 months, not so much. In fact, in the last year, PFE stock is down 18% and that’s after rallying approximately 6% in the 30 days ending on June 15. However, with a P/E ratio of 7x earnings and a price that’s hovering around its 52-week low, PFE stock appears undervalued. And while analysts are concerned the company’s revenue and earnings will decline in 2023, the company has assured investors sales would not drop off as badly as feared. In addition, the bigger story is the company’s recent bid for Seagen (NASDAQ:SGEN) which will add to Pfizer’s existing pipeline of oncology drugs. The company believes that Seagen will contribute $10 billion in revenue by 2030. That will likely increase the company’s free cash flow which is forecast to be $15 billion in 2030 without the revenue from Seagen factored in.
Back in the 1980s, consumers chose their side in the “cola wars” between PepsiCo (NASDAQ:PEP) and Coca-Cola (NYSE:KO). Today, the choice between PEP stock and KO stock may not be as polarizing, but it does bring out some distinct differences. While Pepsi is a more diversified company with a growing snack food division, when it comes to free cash flow, Coke is king. In 2022, Coke generated approximately $11 billion in free cash flow. That’s expected to climb to over $17 billion by 2030, a gain of over 54%.
To be fair, based strictly on total return, PEP stock has outpaced KO stock over the last five years. But Coca-Cola has always been known for its slow, steady growth. That’s one reason it has the support of Warren Buffett. Another reason is the company’s dividend. The dividend king has increased its dividend for 61 consecutive years and currently has a yield of 3.01%.
On the date of publication, Chris Markoch had a long position in AAPL, CVX, and PFE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.