5 Stocks That Are Cash Cows

A cash cow company is a business that requires a one-time investment, enjoys a dominant position in the market and continues to produce stable cash flow over its lifecycle. Much like a dairy cow that requires an upfront cost to purchase but provides a steady flow of milk thereafter. Figuring out stocks that are cash cows is the holy grail of dividend investors.

Here we list five stocks that are cash cows and should definitely be on your radar.

A stable and diverse portfolio makes Apollo an enticing investment prospect

Apollo Commercial Real Estate Finance, Inc [NYSE: ARI] is a commercial real estate finance company. It operates as a real estate investment trust (REIT) that primarily originates, acquires, invests in, and manages senior mortgages, real estate mortgage loans, commercial real estate corporate debt and loans, and mezzanine loans collateralized by commercial real estate throughout the United States and Europe.

The New York-based company offers financing across a broad spectrum of commercial property types and geographies in the United States.

The company is externally managed and advised by ACREFI Management, LLC (the Manager), and an indirect subsidiary of Apollo Global Management, Inc., a leading global alternative investment company with assets worth approximately $331 billion under management.

Apollo Commercial Real Estate Finance, Inc [NYSE: ARI] offers a very high dividend yield.

AGNC Investment announced in the fourth quarter monthly dividend of 16 cents per share for each of October, November and December. This makes Apollo an enticing buy for investors looking for a bond-like asset where the interest rates are unbelievably low.

AGNC Investment has realized rich profits from its approach to invest in prepay-protected pools and lower coupon TBA securities and Mortgage based securities. This has been done simultaneously while pulling down coverage to generic cohorts with higher pre-payment exposure.

Such intelligent hedging strategies, along with prudent portfolio-repositioning efforts, have protected its portfolio from interest-rate risks and high prepayment speed. During the bull run its stock market price displayed low volatility, which is another plus point for the company. Like most other companies, it suffered during the Q1 2020 decline on the back of coronavirus concerns.

A stable and diverse portfolio, differentiated origination and underwriting capabilities and intelligent balance sheet management along with the ability to access diversified capital sources makes ARI an enticing source of income and a valid way to diversify your portfolio.

Simon shining the brightest in a gloomy brick-and-mortar retail space

Simon Property Group, Inc. [NYSE: SPG] is a self-administered and self-managed real estate investment trust (REIT). The company, which is a global leader in the ownership of premier shopping, dining, entertainment and mixed-use destinations among other assets, owns, develops and manages retail real estate properties, including regional malls, outlet centers, community/lifestyle centers, and international properties.

Simon Property Group Inc. [NYSE: SPG] recently acquired Taubman, which was among the biggest mall landlords in the United States.

Taubman had to ultimately cede control after its stocks’ value plunged to a 2009 recession low. The deal, valued at $3.6 billion in cash or $52.50 a share, makes Simon the strongest mall operator in the US. Recently, Forever 21, which was Taubman’s biggest tenant, filed for bankruptcy.

However, the teen fashion retailer got a new lease of life after Simon Property Group Inc and Brookfield Property decided to inject liquidity into the beleaguered retailer.

All these reflect an abject mood in brick-and-mortar retail. Irrespective of all these factors, Simon Property Group is in a league of its own. It possesses five of the 10 most valuable and biggest malls in the US, which substantially raises the barrier to entry.

Also, Simon is the largest non-telecommunications REIT in the entire stock market, and with a huge cash reserve, it has the financial muscle to invest the excess cash in solidifying its asset base.

Moreover, Simon sees an opportunity in the downfall of other major retailers as it gives it a carte blanche to convert the vacant space into “mixed-use” centers where it can build non-retail elements like apartments, hotels and office space. Simon also puts in a lot of money and resources to ensure its tenants are successful.

It’s all doom and gloom in the brick-and-mortar retail space with companies like Toys R Us, Sears and Forever 21 declaring bankruptcies. Simon seems to be rising like a Phoenix from the ashes of these high-profile bankruptcies, as its revenues continue to soar despite the despondent retail climate. The real-estate firm reported retail sales growth of 3.5% on a year-to-year basis.

Simon recently increased its dividend to $2.10 per quarter, which translates into an impressive annualized yield of 5.3%. What is more noteworthy is the company’s stellar record of dividend augmentation, and with a well-covered payout, investors need not worry about losing their income stream anytime soon.

The downbeat mood in retail space means Simon’s stocks are cheaply valued, which makes it is the right time to get in. With good occupancy rates, high cash flows, new investments and ever increasing net operating income, this is one company which should definitely be on your radar.

BGC Partners enjoys a long history of attractive dividend yield

BGC Partners, Inc [NASDAQ: BGCP] operates as a brokerage and financial technology company worldwide, specializing in the trading of financial instruments and related derivatives products.

It offers various brokerage products, such as fixed income securities, equity derivatives, foreign exchange, futures, equities, energy, credit derivatives, commodities, insurance, and structured products to some of the world’s largest and most credit worthy banks, broker-dealers, investment banks and investment firms.

Through its eSpeed and BGCantor Market Data brands, BGC also provides other services that include trade execution, broker dealer, clearing, trade compression, data analytics and other financial technology solutions to financial and non-financial institutions.

BGC Partners, Inc. [NASDAQ: BGCP] enjoys a solid record of high yield and a long history of paying dividends. Both these factors make its stocks enticing to investors, especially those who are more interested in dividends.

The brokerage and financial technology specialist stocks are currently undervalued, which potentially makes it the right time to add the company to your portfolio.

What makes it all the more irresistible is the fact that the company is expected to perform well in the coming years. With revenues expected to grow by over 20% over the next couple of years, the outlook is highly encouraging for BGC Partners.

The company is working towards better managing its expenses, which means higher cash flow is on the cards for the stock. Higher cash flow leads to higher share valuation, which means it is the perfect time to accumulate more of the stock.

Diversification into high-growth businesses a good move by Altria

Altria Group, Inc. [NYSE: MO] is one of the world’s largest producers and marketers of tobacco, cigarettes and related products. The company, through its subsidiaries, manufactures and sells cigarettes, wine and other tobacco products, including cigars and pipe tobacco.

The Henrico County, Virginia-based company owns famous brands such as Marlboro, Black & Mild, Copenhagen, Skoal, Red Seal and Husky. Altria sells varietal, blended table wines, and sparkling wines, and owns Ste. Michelle Wine Estates, one of the country’s top wine producers, and Philip Morris Capital Corporation, an investment company.

Altria [NYSE: MO] has been paying uninterrupted dividends for the last 50 years. And to top it all, it has generated a mindboggling return of more than 93,000% for investors, compared to just 1,530% from the S&P 500 index.

However, the tobacco giant has been plagued with problems, which has led to downfall of its stock value by more than 30% in the past one year.

Altria, by now, has gotten used to the declining number of smokers, as the cigarette industry has been grappling with the falling number of smokers for several decades now. However, the accelerated pace at which they have been falling in recent times has been a cause of concern for tobacco companies.

In its second-quarter earnings report, Altria upped the forecast of decline in U.S. cigarette volumes from 5% to 6% after initially estimating volumes would fall by 3.5% to 5% this year. The company attributed this drop to more people switching to electronic cigarettes, a prime factor in compelling Altria to invest $12.8 billion in leading e-cigs manufacturer Juul Labs in exchange for a 35% stake in the company.

Altria also has entered into a marketing agreement with Philip Morris International (NYSE:PM) to market and sell highly popular heated tobacco device IQOS in the U.S. under its Marlboro brand.

Recently, the U.S. Securities and Exchange Commission opened a probe into Altria’s $12.8 billion investment into Juul Labs. To make matters worse, Juul is now under investigation for enticing teens to take up vaping, and also vaping-related illnesses. The spotlight on e-cigs has caused some retailers like Walmart to wash their hands off the whole business of e-cigs, declaring that they will no longer sell e-cigs in their stores.

However, it should be noted that irrespective of the decline in cigarette sales, the profit margin remains solid because of the simple fact that demand for cigarettes is highly inelastic in nature. This gives tobacco manufacturers an opportunity to raise prices without any fear of a significant slump in sales. Altria, for example, raised prices thrice in the year gone by.

What is more heartening for Altria is that its renowned brand Marlboro is the undisputed market leader. Marlboro’s market share, which stands at 43.3%, is more than the next 7 top brands combined.

Additionally, the tobacco giant owns a 9.6% stake in Anheuser-Busch InBev [NYSE: BUD], and a 45% position in marijuana producer Cronos Group [NASDAQ: CRON].

Altria undoubtedly is going through a lean phase and the same is reflected in its sliding stock price. A large segment is gravitating towards e-cigs and the tobacco giant is investing heavily in it.

Despite all the regulations and attacks by Federal agencies, there is no denying the fact that vaping is here to stay, and will grow at an accelerated pace in the times to come.

Moreover, Altria is diversifying its portfolio with investments in other businesses such as beer, wine and marijuana, a move that is expected to give the company a foothold in domains which offer lucrative opportunities for future growth and expansion. At its discounted valuation, this stock should definitely be on your radar.

The Williams Companies on a solid footing despite sliding oil and gas prices

The Williams Companies, Inc. [NYSE: WMB] is an energy infrastructure company. The company is focused on natural gas gathering, processing, compression and transportation as well as on the business of fractionation of natural gas liquids (NGL), and olefins. The Tulsa, Oklahoma-based company owns and operates petroleum and electricity generation assets and interstate natural gas pipelines.

Williams Companies [NYSE: WMB] is one of the largest pipeline companies in North America.  The company enjoys a high cash flow as huge quantities of oil and natural gas flow through its pipelines. The company in turn uses the funds to offer high dividends to its investors, as well as to expand its pipeline networks.

One of the most noticeable things about the company is that it has a very predictable cash flow since it generates a majority of its money from stable sources like fee-based contracts.

Additionally, Williams Companies is expecting to grow by 5% to 7% in the future. However, due to the panic spread by COVID-19 and sliding oil prices, the company expects its growth rate to face major stumbling blocks in 2020.

Irrespective of the slowing growth rate, the company still expects to deliver dividend growth in the range of 5-7%. Its price-to-cash flow ratio also makes it a lucrative investment prospect. Its stock currently trades at $15 per share, meaning that it sells for roughly twelve times the cash flow. This cheaper valuation provides insights into how the company offers a high dividend yield with a lower payout ratio.

All in all, Williams Companies is an excellent option for income-seeking investors. A high yield, lower valuation and good long-term growth prospects make it a rewarding investment opportunity.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.