40 Stocks With A Free Cash Flow Yield Of 10% Or Better

Recently the Wall Street Journal highlighted the popularity of ROIC (Return on invested capital) as a tool for stockpicking. In our view, Free Cash Flow Yield (FCFY) is as good a measure, for at least two reasons.
First, it is based on market value not book value, which is independent of the stock price (or the cost of equity capital).
Secondly, ROIC shows the return for the enterprise as a whole - both debt and equity - while FCFY includes the effect of leverage.
Our screen shows 40 stocks with a free cash flow yield of 10% or better.
The screen also excludes companies whose Weighted Average Cost of Capital is greater than its ROIC.
Companies which generate significant free cash flow relative to their market cap are potentially targets for a leveraged buyout (LBO), because they generate cash that could be used to service debt. It is possible to make some assumptions as to the terms of a potential LBO and thereby calculate a theoretical price at which the company might be LBO'ed. In some cases - especially in cyclical industries where FCF may be very volatile - LBOs are not really very likely. Still, it is a useful indicator of value; and the final criterion for our screen is that this theoretical LBO price should be higher than the current stock price.
Some investors focus on dividend yield as a manipulation-resistant measure of a company's cash generating power, because you can't fake a cash dividend. Admittedly, companies with a high FCFY do not... Read more