Zacks Investment Ideas feature highlights: Google, Oracle, Macy, Qualcomm and Lowe's
CHICAGO, Jan. 15, 2014 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Google (Nasdaq:GOOG-Free Report), Oracle (NYSE:ORCL-Free Report), Macy (NYSE:M-Free Report), Qualcomm (Nasdaq:QCOM-Free Report) and Lowe's (NYSE:LOW-Free Report).
(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)
4 Shareholder-Friendly Cash Machines
Tech giant Google (Nasdaq:GOOG-Free Report) announced on January 13 that it was acquiring Internet-connected thermostat and smoke alarm maker Nest Labs for a whopping $3.2 billion in cash. Google has over $58 billion in cash and securities sitting on its balance sheet, so it can certainly afford it. But whether or not this will be a good use of shareholders' money remains to be seen.
Businesses have several options when it comes to deploying their excess cash. They can make acquisitions like Google just did, fund organic growth, pay down debt, or return it to shareholders through dividends or stock buybacks.
Of course, a company can just let that money sit in the bank and grow its cash hoard. But with interest rates near record lows, they're generating very low returns for their shareholders.
Ideally, a company should use its capital to maximize long-term value for their shareholders. But clearly some managers understand this concept better than others. Many corporate executives are more concerned about empire-building than producing high returns on capital and often make reckless decisions with shareholders' money that destroys value over time.
If you own a company for the long-run, make sure you know how it is managing its cash.
Buybacks & Dividends
It's not uncommon for companies to distribute more and more cash to shareholders as they mature. Bigger companies have less growth opportunities and compete in crowded markets, so they plow back less of their earnings into the company and more into shareholders' wallets. And dividends, along with stock buybacks, are the quickest and surest way to return value to shareholders.
When a company actually buys back its shares, it has a direct benefit in that it reduces the number of shares outstanding. This means that earnings are divided among fewer shares. In other words, your piece of the pie just got bigger.
Buyer Beware
If a company has the excess funds and their stock is undervalued, buybacks can add tremendous value over time. But make no mistake: stock buybacks don't always add value. In fact, history shows that companies are often bad at timing their repurchases, buying when their share price is high.
The cash allocated to their overvalued stock would have been better spent investing for growth, paying a higher dividend, or just leaving it in the bank.
So make sure the underlying business is sound and the stock is reasonably priced before investing in a company that's buying back its own stock. Because all the buybacks in the world won't save a company headed off a cliff.
4 Shareholder-Friendly Companies
With that in mind, here are 4 solid, shareholder-friendly companies generating strong free cash flow, raising their dividends and buying back stock:
Oracle (NYSE:ORCL-Free Report)
Free Cash Flow (Trailing Twelve Months): $14,618 million (8.5% of market cap)
Share Buybacks (Trailing Twelve Months): $10,750 million (74% of FCF)
Dividends Paid (Trailing Twelve Months): $1,980 million (14% of FCF)
5-year Compound Annual Growth Rate (CAGR) in Dividends: 19%
Macy's (NYSE:M-Free Report)
Free Cash Flow (TTM): $1,321 million (6.4% of market cap)
Share Buybacks (TTM): $1,607 million (122% of FCF)
Dividends Paid (TTM): $345 million (26% of FCF)
5-year CAGR in Dividends: 13%
Qualcomm (Nasdaq:QCOM-Free Report)
Free Cash Flow (TTM): $7,730 million (6.2% of market cap)
Share Buybacks (TTM): $4,610 million (60% of FCF)
Dividends Paid (TTM): $2,055 million (27% of FCF)
5-year CAGR in Dividends: 17%
Lowe's (NYSE:LOW-Free Report)
Free Cash Flow (TTM): $3,239 million (6.3% of market cap)
Share Buybacks (TTM): $3,547 million (110% of FCF)
Dividends Paid (TTM): $723 million (22% of FCF)
5-year CAGR in Dividends: 16%
The Bottom Line
Companies have several options when it comes to deploying their excess cash. These 4 cash machines are choosing to return value to shareholders through generous dividends and big stock buybacks.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Click here for your free subscription to Profit from the Pros.
Get the full Report on GOOG– FREE
Get the full Report on ORCL – FREE
Get the full Report on M – FREE
Get the full Report on QCOM – FREE
Get the full Report on LOW – FREE
Follow us on Twitter: http://twitter.com/ZacksResearch
Join us on Facebook: http://www.facebook.com/ZacksInvestmentResearch
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
SOURCE Zacks Investment Research, Inc.
Share this article