In this article, we discuss 10 high free cash flow dividend stocks.
With looming recession fears and a slumping economy, investors around the world are focusing on dividend stocks like The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG), as they provide regular passive income. For companies that exhibit strong financials, dividends are paid from free cash flow (FCF), which represents the cash left after the company has paid its expenditures and operating expenses. So, strong free cash flow determines the level of dividend sustainability, and companies with solid FCF generation are favored by investors.
As the US stock market recorded a terrible first half of the year, investors are paying attention to FCF now more than ever. According to Mary D’Onofrio, an investor at Bessemer Venture Partners, investors are selling their tech stocks in favor of the companies showing strong cash flows. This was also supported by EMJ Capital’s founder Eric Jackson, who asserted in his recent interview that companies that are becoming free cash flow positive are considered big opportunities in the current market environment.
According to a report by Bloomberg, the net assets of Pacer US Cash Cows 100 ETF, which tracks 100 companies based on free cash flow yield, reached $5.6 billion in May from $1.3 billion at the start of 2022. Due to inflation, the fund’s inflows grew every week this year and the net assets currently amounted to over $6.6 billion. The fund is down 0.76% in 2022 so far, compared with a 13.8% year-to-date loss of the S&P 500, as of the close of July 31. In view of this, we will focus on high free cash flow dividend stocks in this article.
Photo by Dan Dennis on Unsplash
Our Methodology:
The companies mentioned below have shown strong business fundamentals and free cash flow generation in their recent quarterly results. We also calculated the free cash flow yield of respective companies by dividing their FCF by market capitalization. The FCF used in this calculation was as of the end of December 2021. General, companies with free cash flow yields of above 6% are considered safe, which shows that they have enough cash to satisfy their dividend payments. The stocks are ranked according to their free cash flow yields.
High Free Cash Flow Dividend Stocks
10. Chevron Corporation (NYSE:CVX)
Free Cash Flow Yield: 6.5%
Dividend Yield as of August 1: 3.47%
Chevron Corporation (NYSE:CVX) is an American energy company that manufactures and sells gasoline, diesel, marine and aviation fuels, and fuel oil additives.
In Q2 2022, Chevron Corporation (NYSE:CVX) reported cash flow from operations of $13.8 billion and free cash flow of $10.6 billion. The company ended the first six months of the year with over $12 billion available in cash and cash equivalents, up from $5.6 billion at the end of December 2021. Chevron Corporation (NYSE:CVX) pays a quarterly dividend of $1.42 per share, with a dividend yield of 3.47%, as of August 1. The company maintains a 35-year track record of consistent dividend growth.
In July, HSBC upgraded Chevron Corporation (NYSE:CVX) to Buy with a $167 price target, highlighting the company’s buyback policy.
At the end of Q1 2022, 53 hedge funds tracked by Insider Monkey held stakes in Chevron Corporation (NYSE:CVX), the same as in the previous quarter. The collective value of these stakes is nearly $28 billion. Berkshire Hathaway was the company’s largest stakeholder in Q1, with over 159 million CVX shares.
In addition to The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG), CVX is also one of the most prominent dividend stocks to consider.
Diamond Hill Capital mentioned Chevron Corporation (NYSE:CVX) in its Q1 2022 investor letter. Here is what the firm has to say:
“Other top contributors in Q1 included multinational energy company Chevron Corp. (NYSE:CVX). The company benefited from increased energy demand as COVID-related economic restrictions eased in tandem with concerns regarding supply interruptions related to Russia’s invasion of Ukraine.”
9. Target Corporation (NYSE:TGT)
Free Cash Flow Yield: 6.6%
Dividend Yield as of August 1: 2.46%
An American big-box store company, Target Corporation (NYSE:TGT) reported over $1.1 billion in cash and cash equivalents at the end of Q1 2022, with total assets amounting to nearly $18 billion. The company paid over $424 million in dividends during the quarter, up 32.4% from the same period last year. In addition to this, it also repurchased $10 million worth of shares during Q1, indicating strong financials. Target Corporation (NYSE:TGT) generated over $5 billion in free cash flow in FY21 and its free cash flow yield stands at 6.6%.
On June 20, Target Corporation (NYSE:TGT) announced a 20% hike in its quarterly dividend of $1.08 per share. The company maintains a 51-year track record of consistent dividend growth. Its payout ratio currently stands at 27.9%. As of August 1, the stock’s dividend yield came in at 2.46%.
In August, Wells Fargo upgraded Target Corporation (NYSE:TGT) to Overweight, with a $195 price target.
The number of hedge funds tracked by Insider Monkey owning stakes in Target Corporation (NYSE:TGT) stood at 50 in Q1 2022, up from 49 a quarter earlier. The collective value of stakes owned by hedge funds is nearly $3 billion. Arrowstreet Capital held the largest position in the company in Q1.
8. International Business Machines Corporation (NYSE:IBM)
Free Cash Flow Yield: 8.5%
Dividend Yield as of August 1: 5.05%
International Business Machines Corporation (NYSE:IBM) is an American multinational tech company that has operations in over 171 countries globally.
In Q2 2022, International Business Machines Corporation (NYSE:IBM) reported $1.3 billion in net cash from operating activities and generated $2.1 billion in free cash flow. Its free cash flow yield stood at 8.5%. The company ended the quarter with $7.8 billion available in cash and returned $1.5 billion to shareholders in dividends during the quarter.
International Business Machines Corporation (NYSE:IBM) has a solid dividend history, paying dividends to shareholders since 1916 while holding a 27-year streak of dividend growth. It currently pays a quarterly dividend of $1.65 per share, with a yield of 5.05%, as of the close of August 1.
In July, Morgan Stanley raised its price target on International Business Machines Corporation (NYSE:IBM) to $157 with an Overweight rating on the shares, expecting the company to perform well in the second half of the year.
At the end of Q1 2022, 43 hedge funds in Insider Monkey’s database presented a bullish stance on International Business Machines Corporation (NYSE:IBM). These hedge funds owned stakes worth over $1.16 billion in the company.
St. James Investment Company mentioned International Business Machines Corporation (NYSE:IBM) in its Q4 2021 investor letter. Here is what the firm had to say:
“IBM was not the first company to build computers. The distinction belongs to Sperry-Rand’s subsidiary UNIVAC, which introduced the first commercially successful computers in the early 1950s. In this era, IBM did possess the largest research and development department of the business machines industry and quickly caught up, introducing cost-competitive computers a few years after UNIVAC. By the late 1950s, IBM held the dominant market share in computers. IBM also touted a vastly superior sales organization, which used a sales tactic called “paper machines” (the equivalent of today’s “vaporware”). If a competitor’s product was selling well in a market segment that IBM had yet to penetrate, the company would announce a competing product and start taking orders for the “paper machine” long before it was available.
One cannot overstate how powerful IBM was in the computer industry in the 1950s and 1960s. Every competitor rightly worried that if their product worked too well for too long, it was only a matter of time before an army of IBM salesforce representatives mobilized. In their easily recognizable uniforms of starched white shirts, red ties and blue suits, IBM marketers marched on their customers and offered a more expensive, but much more defensible, choice. “Nobody gets fired for buying IBM” was a common phrase. Even competitors acknowledged that the company excelled at sales. As a UNIVAC executive once complained, ‘It doesn’t do much good to build a better mousetrap if the other guy selling mousetraps has five times as many salesmen.’” (Click here to see the full text)
7. AbbVie Inc. (NYSE:ABBV)
Free Cash Flow Yield: 8.6%
Dividend Yield as of August 1: 3.93%
An American biopharmaceutical company, AbbVie Inc. (NYSE:ABBV) reported nearly $5 billion in operating cash flow and over $4.7 billion in free cash flow in Q1 2022. The company’s free cash flow yield currently stands at 8.6%. AbbVie Inc. (NYSE:ABBV) pays a quarterly dividend of $1.41 per share, with a yield of 3.93%. The company has been raising its dividends consistently for the past 50 years.
In July, JPMorgan lifted its price target on AbbVie Inc. (NYSE:ABBV) to $180 with an Overweight rating on the shares, calling the stock one of its favorite names in the pharma sector.
The number of hedge funds tracked by Insider Monkey owning stakes in AbbVie Inc. (NYSE:ABBV) fell to 76 in Q1 2022, from 82 in the previous quarter. The stakes owned by these hedge funds are collectively valued at over $3.6 billion. Among these hedge funds, Arrowstreet Capital was the company’s largest stakeholder in Q1, holding stakes worth over $754 million.
Carillon Tower Advisers mentioned AbbVie Inc. (NYSE:ABBV) in its Q1 2022 investor letter. Here is what the firm has to say:
“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. AbbVie (NYSE:ABBV) is a research-based biopharmaceutical company. Shares gained after the company reported earnings that missed revenue but beat earnings-per-share estimates. Discussion around the report was mixed but skewed positive.”
6. Exxon Mobil Corporation (NYSE:XOM)
Free Cash Flow Yield: 8.8%
Dividend Yield as of August 1: 3.63%
Exxon Mobil Corporation (NYSE:XOM) reported a strong balance sheet in Q2 2022, posting cash flow from operating activities of $20 billion. The energy company generated $16.9 billion in free cash flow, up from $10.8 billion recorded in the previous quarter. It distributed $7.6 billion to shareholders during the quarter, $3.7 billion of which represented dividend payments. Exxon Mobil Corporation (NYSE:XOM) has a free cash flow yield of 8.8%.
Exxon Mobil Corporation (NYSE:XOM) holds a 38-year track record of consistent dividend growth. It pays a quarterly dividend of $0.88 per share, with a dividend yield of 3.63%.
On August 1, BofA raised its price target on Exxon Mobil Corporation (NYSE:XOM) to $123, while maintaining a Buy rating on the shares.
Exxon Mobil Corporation (NYSE:XOM) was a popular stock among elite funds in Q1 2022, as 83 hedge funds in Insider Monkey’s database owned stakes in the company, up from 71 a quarter earlier. These stakes are collectively valued at over $8.55 billion.
Like The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG), analysts and investors are also paying attention to Exxon Mobil Corporation (NYSE:XOM).
Saturna Capital mentioned Exxon Mobil Corporation (NYSE:XOM) in its Q4 2021 investor letter. Here is what the firm has to say:
“Few companies maintain their position at the top for more than a decade or two. One that did was Exxon, which appeared decennially from 1980 through 2010. In 2019 it was ranked 10th, but as of writing has dropped to 39th place.”
5. Altria Group, Inc. (NYSE:MO)
Free Cash Flow Yield: 10%
Dividend Yield as of August 1: 8.21%
Altria Group, Inc. (NYSE:MO) produces and markets tobacco, cigarettes, and related products. In its second quarter 2022 report, the company posted solid financials, with cash and cash equivalents amounting to over $2.5 billion. The company paid over $1.6 billion in dividends during the quarter and maintained its long-term payout ratio target of 80%. It also repurchased 10 million shares in Q2 for a total cost of over $507 million.
On May 19, Altria Group, Inc. (NYSE:MO) declared a quarterly dividend of $0.90 per share, in line with its previous dividend. The company holds a 52-year streak of consistent dividend growth. As of August 1, the stock’s dividend yield came in at 8.21%.
In July, Jefferies set a $54 price target on Altria Group, Inc. (NYSE:MO) with a Buy rating on the shares but expressed concerns due to worsening cigarette volumes in the US.
At the end of Q1 2022, 47 hedge funds in Insider Monkey’s database owned stakes in Altria Group, Inc. (NYSE:MO), up from 39 a quarter earlier. These stakes are collectively valued at nearly $2 billion. GQG Partners was the leading stakeholder of the Virginia-based company in Q1, owning stakes worth over $956.2 million.
4. American Express Company (NYSE:AXP)
Free Cash Flow Yield: 11.2%
Dividend Yield as of August 1: 1.35%
American Express Company (NYSE:AXP) is a New York-based credit card service company that also provides travel-related offerings to consumers.
In Q2 2022, American Express Company (NYSE:AXP) reported an operating cash flow of over $4.2 billion, up from $3.8 billion in the previous quarter. The company’s free cash flow also grew to $over $3.8 billion, from $3.4 billion recorded at the end of March. Its free cash flow yield stood at 11.2%. American Express Company (NYSE:AXP) has a very strong dividend history, offering regular payouts to shareholders for the past 30 years. It currently pays a quarterly dividend of $0.52 per share, with a dividend yield of 1.35%, as of August 1.
As per Insider Monkey’s Q1 2022 database, 69 hedge funds owned stakes in American Express Company (NYSE:AXP), up from 64 in the previous quarter. The collective value of these stakes is over $33 billion, compared with $29 billion worth of stakes owned by hedge funds in the previous quarter.
3. Archer-Daniels-Midland Company (NYSE:ADM)
Free Cash Flow Yield: 11.6%
Dividend Yield as of August 1: 1.93%
Archer-Daniels-Midland Company (NYSE:ADM) is an American food processing company that offers sustainable human and animal nutrition.
At the end of Q2 2022, Archer-Daniels-Midland Company (NYSE:ADM) reported $906 million in cash and cash equivalents, up from $869 million in the same period last year. The company’s operating cash flow came in at $531 million and free cash flow stood at $248 million. It paid over $453 million in dividends during the quarter, compared with $417 million worth of payouts in the prior-year quarter. The company’s free cash flow yield came in at 11.6%.
Archer-Daniels-Midland Company (NYSE:ADM) pays a quarterly dividend of $0.40 per share. The company has been making dividend payments for the past 90 years while maintaining a 48-year track record of consistent dividend growth. The dividends are well covered with a payout ratio of 24.2%. As of August 1, the stock’s dividend yield stood at 1.93%.
As the demand for renewable diesel has increased, Baird raised its price target on Archer-Daniels-Midland Company (NYSE:ADM) in July to $94, with an Outperform rating on the shares.
According to Insider Monkey’s Q1 2022 database, 42 hedge funds owned stakes in Archer-Daniels-Midland Company (NYSE:ADM), with a collective value of $625.6 million. In the previous quarter, 41 hedge funds owned stakes in the company, worth $481.2 million.
Diamond Hill Capital mentioned Archer-Daniels-Midland Company (NYSE:ADM) in its Q1 2022 investor letter. Here is what the firm has to say:
“ADM is a leading agricultural processor that also operates a global nutrition business focused on the development of ingredients and flavors for food and beverages, supplements and more. The company’s recent operating results have benefited (unfortunately) from the war in Ukraine as grain prices and agricultural markets globally experienced strong price increases. ADM is positioned well to benefit from the volatility due to its stable North American agricultural base.”
2. AT&T Inc. (NYSE:T)
Free Cash Flow Yield: 18.9%
Dividend Yield as of August 1: 5.91%
AT&T Inc. (NYSE:T) is a Texas-based multinational telecommunications company that is the largest provider of mobile phone services in the US.
In Q2 2022, AT&T Inc. (NYSE:T) generated over $1.1 billion in free cash flow, up from $984 million in the previous quarter. The company’s operating cash flow came in at nearly $6 billion, compared with $5.7 billion at the end of March 2022. Its free cash flow yield stood at 18.9%. The company expects to generate over $10 billion in free cash flow in the second half of the year. AT&T Inc. (NYSE:T) paid over $2 billion worth of dividends during the quarter and its free cash flow dividend payout ratio came in at 150%.
AT&T Inc. (NYSE:T) has been raising its dividends consecutively for the past 23 years. Its current quarterly payout stands at $0.2775 per share, with a yield of 5.91%, as of the close of August 1.
In July, Morgan Stanley set a $22 price target on AT&T Inc. (NYSE:T) with an Overweight rating on the shares, highlighting the company’s earnings beat in Q2 2022.
As per Insider Monkey’s data, 74 hedge funds were bullish on AT&T Inc. (NYSE:T) in Q1 2022, up from 70 in the previous quarter. The stakes owned by these hedge funds are collectively valued at over $4 billion. Among these hedge funds, Arrowstreet Capital owned the largest stake in the company, valued at $678.5 million.
Weitz Investment Management mentioned AT&T Inc. (NYSE:T) in its Q4 2021 investor letter. Here is what the firm has to say:
“After several quarters of pandemic-induced outsized growth, new broadband connection growth has slowed for U.S. cable operators. This slower growth has coincided with a renewed push by competitors like Verizon and AT&T to offer high-speed data (either via wireless connects or by building new fiber-optic networks).”
1. Chubb Limited (NYSE:CB)
Free Cash Flow Yield: 24.2%
Dividend Yield as of August 1: 1.76%
Chubb Limited (NYSE:CB) provides insurance products that cover property and casualty, accident and health, life insurance, and reinsurance.
At the end of Q2 2022, Chubb Limited (NYSE:CB) reported over $7 billion in cash, up from $1.6 billion at the end of December 2021. Its operating cash flow came in at $2.7 billion, up from $2.4 billion in the previous quarter. The company’s free cash flow yield came in at 24.2%. Chubb Limited (NYSE:CB) pays a quarterly dividend of $0.83 per share. The company spent over $348 million in dividends during the quarter. The stock’s dividend yield was recorded at 1.76%, as of the close of August 1.
In July, Jefferies lowered its price target on Chubb Limited (NYSE:CB) to $244 due to Russia-related losses and below-average investment returns of the insurance sector. However, the firm maintained a Buy rating on the stock.
At the end of March 2022, 31 hedge funds in Insider Monkey’s database owned stakes in Chubb Limited (NYSE:CB), down from 34 a quarter earlier. These stakes are collectively valued at over $1.8 billion.
Aristotle Capital Management mentioned Chubb Limited (NYSE:CB) in its Q1 2022 investor letter. Here is what the firm has to say:
“Our investment in Chubb began in the fourth quarter of 2015, shortly after ACE Limited announced it would acquire the Chubb Corporation, creating the largest global property and casualty insurance company by underwriting income. During our nearly seven-year holding period, the company’s combination progressed leading to the realization of main catalysts we had identified. These included cost savings, broadened product offerings and an expanded customer base, as well as enhanced distribution capabilities and improved pricing due to scale. In addition, Chubb successfully grew its profitable high-net-worth personal lines. While we still consider Chubb to be a high-quality business, few catalysts remain after what was, in our opinion, a remarkable run of successful business execution. As such, we decided to step aside in favor of what we believe to be a more optimal investment in Blackstone.”
You can also take a look at 10 Best Dividend Stocks to Buy in 2022 and 10 Best Long-Term Dividend Stocks
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Disclosure. None. 10 High Free Cash Flow Dividend Stocks is originally published on Insider Monkey.
