![]() In the case of NACCO (which I own), I knew the stock would have about $5 of net cash per share after the spin-off was completed. So, I'd cross SuperValu off my list of stocks to analyze based on high free cash flow. And then, on top of that, I didn't think Omnicom was overleveraged at this point. I meant that the free cash flow yield - when coupled with the growth rate I'd expect - was adequate. What you are talking about with Omnicom is that I said previously (in 2017) that if you could buy the stock at about $65 a share - I thought it was cheap and would suggest buying it. However, Moody's and companies like that would rate Omnicom bonds as an investment grade type risk. ![]() Like almost all ad agencies, the traditional Z-Score (which is meant for manufacturing firms) would tell you Omnicom is in financial distress. Omnicom is financed largely through "float" produced by getting paid by customers before having to make payments on behalf of those customers. You mentioned Omnicom and NACCO as being two stocks I spoke about having good enough free cash flow yields. I wouldn't view that the same way as Village Supermarket (VLGEA) which has an overcapitalized balance sheet (for a supermarket) or Kroger (KR) which actually owns about half of its properties and then has a very nice debt structure of long-term, fixed rate bonds that should lock in a very low real interest rate for a very long time. So, you have a supermarket stock like SuperValu ( SVU) which has a lot of debt. Well, one issue is that some of the stocks on that list are leveraged. So, how does that relate to your list of stocks with 10% plus free cash flow yields? I see a clear path to 10%+ type returns even if you end up having to hold the stock for a while. So, if I buy a bank with a 4% dividend yield, I think that it could grow 6% a year while paying that 4% yield out. It's today's payout plus the growth in that payout that matters to me.ĭoing that kind of math on any of the stocks I buy (at the time I buy them) will get you closer to seeing what I saw in them. To simplify, if a stock could have a 5% dividend yield and a 5% growth rate (while still having a 5% dividend yield), it would interest me as much as a stock that just had a 10% dividend yield or just had a 10% growth rate. divided by the stock price (so that's your "free cash flow yield") plus the annual rate of growth in that cash flow while still making such payments. It's the amount of cash flow available to buy back stock, pay dividends, acquire other businesses, etc. The number that really matters isn't free cash flow. ![]() In other words, how do you look at different FCF Yields and decide: This is a real yield, and this is not?" What would stop them from returning 10 %+ every year, as opposed to NACCO, OMC etc., stocks that have very high FCF yields, and that you openly like a lot? Warning! GuruFocus has detected 1 Warning Sign with SVU. ![]() Take a look at these stocks (note: he provides a link to a list of 40 stocks with a free cash flow yield of 10% or higher). ![]()
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