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5 Companies Sharing the Most Cash With Shareholders - views
BALTIMORE (Stockpickr) -- As the tug of war between stock market buyers and sellers continues to drone on, there are three words investors should be remembering right now: Cash is king.
I’m not just talking about companies that have cash, though. Don’t get me wrong -- I’m a fan of companies that have big cash balances. But there’s another group of stocks that are potentially more interesting: the stocks that are sharing the biggest profits with shareholders in this market.
Fundamental investors don’t put enough emphasis on cash. Instead, metrics like P/E get more attention than they should. But most investors don’t realize that in the real world, the term “earnings” has a tenuous relationship with the amount of cold hard cash a company brings in. Noncash accounting items, like depreciation or unrealized gains, can impact profits without actually changing the amount of cash shareholders have access to. Even dividends don’t hold the whole story.
Today, we’re bypassing the accounting measures, and looking at five large-cap stocks that are sharing the most cash with investors in 2012. To do that, we’re tallying up dividend and net stock buybacks (the amount of its own stock bought back by the firm, less any issuances) and finding the firms that are returning the most value to shareholders by those measures.
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Without further ado, here’s a look at five stocks that are sharing the most money with their owners.
Topping the list is Exxon Mobil (XOM), which returned $30.15 billion to shareholders in the last year, a number close to 8% of the firm’s total market capitalization. Exxon has been under pressure from falling oil prices this year, but the firm is still handily profitable at current crude price levels. And as I already mentioned in "5 Huge Stocks Ready to Slingshot Higher" this week, Exxon is looking attractive from a trading standpoint -- especially if it can get bid over $87.
Exxon Mobil is the largest oil and gas supermajor in the world, with reserves of more than 17.7 billion barrels of oil equivalent on its balance sheet at last count. Exxon realizes that it’s beholden to forces outside of its control, namely commodity costs. To counter that, the firm is obsessed with reducing what it can control: namely the cost of pulling oil and gas out of the ground.
The acquisition of XTO Energy transformed Exxon Mobil from an oil company to a key player in the natural gas market as well. Even though natgas prices have skidded along multi-year lows recently, there’s a bevy of fundamental reasons to expect more upside in the fuel.
Because Exxon is an integrated oil and gas firm, it has a hand in every step of the energy business, from pulling oil out of the ground to refining it to retailing it at its gas stations. While integrated operations have dilutive effects on margins versus a straight E&P play, they boost profits on an absolute level. That’s why Exxon has been able to shovel so much of its cash back to shareholders in the last year.
A focus on shareholder value is a good reason to make Exxon a key part of your portfolio.
Intel (INTC) takes the No. 2 spot on our list. While the firm’s shares are up around 10% as of this writing, the real returns have come straight from the chipmaker’s coffers: with $16.4 billion paid out to shareholders in dividends and buybacks last year, the firm returned 12.53% of its market capitalization back to investors.
There’s a lot I like about Intel. I like the firm’s 3.15% dividend yield at current price levels. I also like the fact that Intel owns around 80% of the microprocessor industry. Intel’s dominance in the chip business has been hard fought, but now that it’s so established, the firm is going to be hard to unseat. Intel effectively owns the computer processor business, and while computers have become extremely commoditized in recent years, Intel’s chips haven’t. Mobile devices are the biggest path to growth for Intel at this point, in part because they get consumed so quickly and in part because they could eat share from the computer business.
A huge R&D budget (and more than $10 billion in net cash and investments) should help the firm shove its foot in the door for a bigger piece of the mobile device market, especially as consumers increasingly expect PC-like performance out of smartphones and tablets.
Those factors make Intel a solid core holding right now. But Intel’s not the only technology name on this list -- far from it.
IBM (IBM) is a technology behemoth in its own right, but it’s not courting consumers. Instead, the $225 billion enterprise IT company builds mainframes, designs software, and provides IT services to corporate clients across the world. To say that IBM is an international firm isn’t just lip service; close to two-thirds of IBM’s sales are earned outside the United States.
Historically, IBM has been a market leader in the IT field. The company unloaded its personal computer unit to Lenovo back in 2005, well before the commoditization of PCs was a major concern for most tech investors. In its place, the firm moved into lucrative (and high margin) consulting jobs and hardware sales where it could get deeply integrated into clients’ operations. By becoming a go-to resource for clients, IBM ensures a sticky, (largely recurring) revenue stream. That’s enviable positioning, especially given that other computer makers are scrambling to play catch up.
That’s also a big part of why IBM is able to earn net margins that are deep in the double digits. Last year, IBM returned $16.07 billion to investors in the form of dividends and buybacks -- that’s more than 7.2% of the firm’s current market capitalization.
Like Exxon, IBM is one of the big-name stocks that I like for technical reasons this week (it's also included in my "5 Huge Stocks Ready to Slingshot Higher"). And from a timing perspective, that makes IBM look even stronger right now.
IBM shows up on a list of 10 Century-Old Blue-Chip Stocks Still Earning Their Keep.
Another tech name on our list is Microsoft (MSFT), the $258 billion software and electronics giant. Microsoft paid out $14.3 billion back to investors in the form of dividends and stock buybacks last year, tacking onto already impressive performance that MSFT has been enjoying lately. Year-to-date, shares of Microsoft have rallied close to 20%.
Microsoft is at a turning point right now, not unlike Intel. While the firm lays claim to the dominant computer operating system, mobile devices are increasingly doing the jobs that consumers turn to their desktops for -- and MSFT doesn’t own the dominant share of the mobile market. To combat that, the firm has been releasing new phones and tablets, hoping to capture a bigger piece of Apple’s (AAPL) iDevice pie.
Now’s a good time for Microsoft to spend R&D to try to create the “next big thing” -- the lion’s share of the firm’s sales still come from software franchises like the Windows OS and the Office suite of applications, sticky revenues that can easily support the firm’s development costs, on top of large payouts to shareholders. And with close to $60 billion worth of net cash and investments on its balance sheet, Microsoft has plenty of dry powder to keep on looking for ways to bridge the gap between its core products and your mobile devices.
Last up is big pharma firm Pfizer (PFE). Pfizer, like most of its peers, has been under pressure in the last couple of years, as investors get anxious about big patent losses eating away at the firm’s profitability. Indeed, big drugs like cholesterol therapy Lipitor have fallen from patent protection, opening the door for cheaper generic competition -- but it’s Pfizer’s pipeline that investors should be focusing on right now.
In 2009, Pfizer bought drugmaker Wyeth in a deal that dramatically increased the combined firm’s dug pipeline while realizing massive merger cost savings. Just like a diversified portfolio of stocks mitigates risk for investors, a diversified portfolio of drugs wrings a lot of the risk from Pfizer’s new operations.
So does cash. The firm currently has close to $34 billion in cash and investments on its balance sheet, a number that effectively makes PFE debt-neutral following the Wyeth buy. That’s an impressive accomplishment given the size of the deal.
In the last year, Pfizer has shelled out $15.23 billion on buybacks and dividends, representing almost 10% of the firm’s market capitalization. The firm’s 3.87% dividend yield makes it a good play for income-seeking investors.
I also featured Pfizer recently in "5 Health Care Stocks Setting Up to Break Out."
To see these cash-generous stocks in action, check out the Big Payout Stocks portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.