Cash truly is king. That’s especially true when looking at dividend stocks. Perhaps nothing matters more to dividend stocks than cash flows and balance sheet health. These two factors are probably the two biggest determinants of whether a firm can significantly grow their payout down the line. Or more importantly, keep a high-yield going. After all, you can “fake” earnings-per-share with accounting tricks, but you can’t fake how much money a firm has in the bank.
So, it stands to reason, that investors looking for big-time dividends, should focus not on just initial yield, but on a firm’s cash/cash flows.
But what dividend stocks are truly “cash rich” and have plenty of Franklin’s in cash flows and hoarded away on their balance sheets? Here are five that fit the bill perfectly.
Cash-Rich Dividend Stocks: Amgen, Inc. (AMGN)
Dividend Yield: 3.11%
The biotech sector isn’t normally someplace investors go to find dividend stocks. However, when you’re one of the first biotech’s to have major blockbusters under your belt, you can’t help but generate billions in cash flows. And that’s just the case with Amgen, Inc. (NASDAQ:AMGN).
After building a foundation for its drug portfolio on groundbreaking treatments for red and white blood cell deficiencies back in the 90’s, AMGN has continued to build up an impressive portfolio of drugs. Enbrel and Neulasta are two of the most widely prescribed drugs in their categories, while Repatha, Prolia and blood-cancer drug Kyprolis have all continued to see growing sales.
This has created some pretty insane cash flows. AMGN reported more than $10.7 billion in free cash flows last year and features a cash balance of nearly $42 billion. That leaves plenty of room to grow its 3.11% dividend, under go some serious M&A as well as beef-up its pipeline. Amgen already recently hiked its payout by 15% at the beginning of the year. But clearly, there’s more room to boost it further.
For investors looking for a cash-rich dividend stock, Amgen could be it.
Cash-Rich Dividend Stocks: Microsoft Corporation (MSFT)
Dividend Yield: 1.85%
Satya Nadella could end up being the most important person in Microsoft Corporation’s (NASDAQ:MSFT) history besides Bill Gates. Nadella was responsible for sparking the recent renaissance at Mr. Softy and took the software company to the cloud.
And that move seems to be the right one. Microsoft continues to snag larger enterprise customers for its full range of products. During the last quarter, MSFT reported 90% year-on-year growth for Microsoft’s Azure. Azure represents its infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) product, while Dynamics 365 — its customer relationship management software-as-a-service (SaaS) product — saw year-on-year growth of 69%. Adding in continued growth in Office 365 for both consumers and business and you have a recipe for a reinvented MSFT.
This reinvention has another purpose as well. Namely, producing plenty of cash flows.
Software already features high margins and those margins get even higher when you force customers to pay for it via subscriptions. As a result, MSFT has managed to produce over $30 billion in free cash flows during the last year and it has grown its cash pile to a staggering $135 billion.
With cash like that, it’s no wonder why MSFT has managed to grow its dividend by nearly 225% in just eight years. When it comes to dividend stocks, Microsoft can’t be beaten.
Cash-Rich Dividend Stocks: Valero Energy (VLO)
Dividend Yield: 3.33%
When it comes to dividend stocks, it’s good to be the king. And downstream player Valero Energy Corporation (NYSE:VLO) just happens to wear the crown. With 15 facilities, VLO is the largest independent refiner. And that position has continued to provide investors with plenty of profits as well as dividends over the years.
With its large system, VLO is able to extract every margin of profit out of crack spreads and each barrel of oil that goes through its facilities. That’s important as refining is a game of inches. Every nickel and dime counts. And Valero has been very successful at picking up those nickels and dimes. Over the last year, the refiner had free-cash flows of $4.09 billion dollars.
This has helped the firm build it’s over cash pile to over $5.2 billion.
So, with crack spreads continuing to move in Valero’s favor it should continue to pull more cash out of its operations. Even better is that its been able to stick plenty of its assets into its tax-advantaged MLP- Valero Energy Partners (NYSE:VLP) to help boost its cash flows further.
Adding it all together, investors get a 3.33% dividend yield that continues to grow. VLO recently just raised its payout by 14%.
Cash-Rich Dividend Stocks: Visa (V)
Dividend Yield: 0.70%
I know what you’re thinking. A 0.70% dividend? I came here for dividend stocks, not a token payout. But that small yield at Visa Inc (NYSE:V) is truly masking one of the market’s best dividend growth stories around.
We all know Visa. But many of us don’t really understand what it does. V isn’t a credit issuer and doesn’t do any direct lending. The firm is what’s called a payment processor — that is, it simply moves money from one account to another along its secured payment network. It’s toll-road and charges merchants, banks and other institutions a fee every time someone uses credit or a debit card. This middleman position is incredibly high-margined and lucrative for Visa.
Last year, more than 44.579 billion transactions across the globe went through Visa’s network. And the firm collected a fee each time. That has continued to bolster Visa’s cash flows and its hefty balance sheet. The firm ended 2017 with more than $14 billion in cash.
Visa has continued to use that cash to reward shareholders with dividend increases. In the decade since V has started paying a dividend, its grown its payout by nearly 700%. That bests most dividend stocks by a mile. For investors looking to see some big growth in their income, Visa is one of the best choices.
Cash-Rich Dividend Stocks: Moody’s Corporation (MCO)
Dividend Yield: 1.08%
When looking for dividend stocks with big cash flows and balances, the best plays often have little to no overhead or capital spending. With that idea in mind, there’s a reason why Warren Buffett owns shares of Moody’s Corporation (NYSE:MCO).
Moody’s — along with rival Standard & Poor’s — provides credit ratings, research and risk analysis services. And as one of the three main ratings agencies, investors, banks and other customers rely on MCO to make their investment decisions. In fact, a company can’t issue a bond without a ratings agency giving it it’s blessing. That sends a variety of customers its way.
The best part is that Moody’s only real overhead is salary. That leads to plenty of cash generation and mega-sized margins for its products. Last year, Moody’s managed to generate more than $1.6 billion in free cash flows on sales of $4.2 billion. It’s cash balance now sits at roughly $3.4 billion.
This strong cash generation has allowed MCO stock to pay plenty of dividends over the year. It has grown its payout from a measly 9 cents when it IPO’d in 2001 to over $1.52-per-share.
For investors looking at dividend stocks, MCO has the goods to keep the payouts going. It’s low-overhead, wide moat has plenty to be desired by income seekers.
As of this writing, Aaron Levitt was long AMGN.