When investors look for the best stocks to buy, they generally try to find stocks with some decent liquidity. And that makes sense, because the motive behind every investment is the same:
Investors just want a good return on their money.
Well, we’re now in the seventh year of a bull market, and while there’s no shortage of stocks that seem like safe bets, what’s going to happen when the Federal Reserve raises rates? What if there’s a major correction and creditors come calling?
Companies with subpar cash flows or major debt will be in big trouble. But these cash-rich companies will do just fine.
After all, companies that amass massive war chests ultimately will have plenty to protect them during a market setback, and most of the stocks we’re about to discuss have so much money that they’re returning huge sums to shareholders via dividends or share buybacks.
Let’s take a gander at the seven best cash-rich stocks to buy today:
7 Cash-Rich Stocks to Buy: Apple (AAPL)
Total Cash & Short-Term Investments: $33 billion
Apple (AAPL) has been the undisputed cash king of the corporate world for years now. At the end of its first quarter, AAPL had $33 billion in cash and short-term investments. And that’s not to mention the whopping $160 billion in long-term investments.
In all, Apple’s total war chest is more than the next two stocks on this list combined.
While much of that cash is held overseas — and thus can’t be repatriated without Apple eating a huge tax bill — AAPL still has enough of a stockpile to do some serious damage.
If you’re looking for cash-rich stocks to buy, Apple is, without a doubt, where you want to start your search. As AAPL stock holders know, Apple’s absurd cash hoard became literally too large to ignore in 2012, when the company announced it would start paying a quarterly dividend of $2.65 per share (37.86 cents when adjusted for Apple’s 7-for-1 stock split in 2014).
Apple has been raising its dividend ever since, and now pays a quarterly dividend of 52 cents per share, good for a dividend yield of 1.6% at current prices.
With investors like Carl Icahn badgering Apple to return cash to shareholders, Apple increased its share buyback program by more than 50% in April, and plans to line investors pockets with $200 billion in dividends and share buybacks by the end of March 2017.
7 Cash-Rich Stocks to Buy: Microsoft (MSFT)
Total Cash & Short-Term Investments: $95 billion
Apple isn’t the only company that’s been flush with cash for years on end.
Annually gracing the list of companies with the most cash on hand, Microsoft (MSFT) had $95.4 billion in cash and short-term investments and just more than $12 billion in additional long-term investments at the end of its most recent quarter.
When you’ve got over $100 billion in the bank, investors are prone to ask, “Whatcha gonna do with all that cash, all that cash up in them banks?”
Microsoft’s simply giving those Benjamins back to its shareholders. It pays out $1.24 a year in dividends, and for the past 11 years that number has been rising. As of now, the MSFT dividend yield sits at 2.7%.
But when you’re Microsoft-rich, even shoveling out tens of billions of dollars each year in dividends can’t bleed you dry: Rumors are swirling that MSFT could be in the running to buy Salesforce.com (CRM), the cloud-based leader in customer relationship management.
7 Cash-Rich Stocks to Buy: Google (GOOG, GOOGL)
Total Cash & Investments: $65 billion
Surprise, surprise. Another Silicon Valley giant with more money than it knows what to do with.
For better or worse, Google (GOOG, GOOGL) isn’t following the lead of AAPL and MSFT and returning cash to its shareholders. No, Google doesn’t pay a dividend or buy back stock — it prefers instead to acquire disruptive up-and-coming companies and spend frivolously on projects that may never work.
Don’t get me wrong, I love that someone out there is still taking risks no one else will — in other words, Google is willing to “think different” — but I agree with Andrew Bary of Barron’s, who in February called for GOOGL to start rewarding its shareholders more directly.
Not only would Google become one of the most innovative dividend stocks to buy overnight, but the resultant boost in the GOOGL stock price could help the company attract and retain talent in today’s uber-competitive hiring environment. Writes Bary:
“A dividend and buyback would broaden Google’s investor base to include institutional investors who require a dividend, and it would help the company stay competitive in the tight market for talented engineers and other key employees in Silicon Valley, to the extent it boosts the share price.”
Honestly, for such a brilliant company, you’d think Google would stop trying to reinvent the wheel and just pay a minimal dividend. In the meantime, GOOG will be researching hovercrafts and teleporters.
7 Cash-Rich Stocks to Buy: Pfizer (PFE)
Total Cash & Equivalents: $28 billion
Pharmaceutical giant Pfizer (PFE) does what most sensible, mature companies with tens of billions of dollars in the bank does: It pays a dividend (are you listening, Google?).
Having raised its dividend for five straight years, the PFE dividend yield now sits at 3.3%.
Of course, pharmaceutical companies like Pfizer need to constantly invest in drug discovery, so a healthy amount of cash on the books is more or less required for long-term success. In 2014, PFE spent $8.31 billion (16.8% of revenues) on research & development, up dramatically from the $6.55 billion (12.7% of revenues) in 2013.
That increased focus on R&D, on top of the fact that PFE is one of the 10 Best Dow Dividend Stocks month after month, should have investors jazzed about how Pfizer is spending its money.
On top of that, Pfizer bought Hospira (HSP) — a generic drug company that develops biosimilars, — for $15.2 billion earlier this year. Generics are some of the hottest acquisition targets in the stock market today, so if Pfizer didn’t get its hands on Hospira, it probably would’ve been snapped up by a competitor.
7 Cash-Rich Stocks to Buy: Cisco Systems (CSCO)
Total Cash & Investments: $54 billion
Network equipment-maker Cisco Systems (CSCO) isn’t quite the high-flying, rapid-growth tech stock it once was back in the 1990s. But that’s OK, because today it’s simply a mature cash cow with more money than you can imagine.
Cisco holds $54 billion in cash and short-term investments in its coffers, accounting for a substantial amount of Cisco’s $146 billion market cap. CSCO stock trades for just under $30 per share, but the cash on its books alone is worth $10.70 per share.
CSCO, largely by virtue of its enormous cash pile, is arguably one of the best value stocks to buy on Wall Street today. Cisco stock’s price-to-earnings ratio sits just below 17, more than a 20% discount to the S&P 500’s multiple of 21.5.
But when you back out its cash, CSCO stock trades at a mere 10.3 times trailing earnings. Not too shabby in a frothy market like today’s. That looks a whole lot more attractive when you add in the nearly 3% dividend yield.
With Cisco also playing a heavy role in the Internet of Things — a market outgoing CEO John Chambers expects will have a $19 trillion economic impact by 2020 — Cisco has a ton of potential, not just a ton of money.
7 Cash-Rich Stocks to Buy: Berkshire Hathaway (BRK.B, BRK.A)
Total Cash & Investments: $63.7 billion
Warren Buffett’s baby is well-known for keeping a loaded gun at the ready in case the company needs to go “hunting elephants” (proverbially, of course). In other words, Berkshire keeps tons of cash at the ready in case there’s an investment opportunity that’s simply too good to pass up.
Not included in the $63.7 billion figure are the hundreds of billions of dollars in equity, fixed income, and other investments that Berkshire lists as assets. That’s because Berkshire is different from other stocks on this list — it’s a holding company, and with Buffett’s favorite holding period being “forever,” it doesn’t seem fair to consider those highly liquid assets.
Although there’s really no such thing as stability in the stock market, if you’re somewhat averse to risk and looking for stocks to buy, Berkshire isn’t a bad one to go with. While Berkshire Hathaway doesn’t typically issue dividends or buy back stock, there’s one notable exception that investors should keep in mind: If shares ever trade below 1.2 times book value, Berkshire is authorized to buy back shares, essentially putting a floor on the BRK stock price.
Today the price-to-book value sits at 1.43.
7 Cash-Rich Stocks to Buy: Qualcomm (QCOM)
Total Cash: $16 billion
With $29.6 billion in cash and long-term investments on its books, chipmaker Qualcomm (QCOM) is flush with cash, not to mention an addition $14 million in long-term investments.
Ever-mindful of its fiduciary duty to shareholders, QCOM stock has paid a regular dividend since 2003, and the company has even managed to grow its payout every year since then, for the last 12 years.
I named QCOM as one of the 5 Best Unloved Dividend Stocks to Buy earlier this month, noting that sales have grown by 20% annually over the last five years. Also:
“Here’s the real kicker: Qualcomm has zero long-term debt on its balance sheet, giving it far more flexibility with its cash. That’s one investor perk of owning shares of a company that doesn’t have to shell out a ton of interest expense.”
Zero debt? Hard not to consider that a huge plus. Even if Qualcomm wasn’t cash flow-positive (it is, to the tune of $1.8 billion in 2014) it could take to the bond markets and borrow billions of dollars on the cheap to fund whatever it saw fit.
Plus, by making an early investment in Xiaomi, the Chinese smartphone maker coming out of nowhere to challenge Apple, QCOM should benefit from Xiaomi’s meteoric rise. Qualcomm also is a chip supplier to Xiaomi, so QCOM gets to double-dip on Xiaomi’s success.
As of this writing, John Divine was long shares of AAPL stock, GOOG stock, and GOOGL stock. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.