Warren Buffett Holds These Shares For Huge Free Cash Flow

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For risk averse investors, companies that generate large amounts of cash are a good bet

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Wall Street pays special attention to corporate profits.

But declared profits are often manipulated by aggressive or even fraudulent accounting methods.

This is why risk averse investors should focus on large companies which generate masses of free cash flow.

Hard cash is real and can be used by shareholder-friendly management teams to:

  • Pay dividends that fight inflation.
  • Repurchase of shares.
  • Grow the business organically.

Berkshire Hathaway investment legend and CEO Warren Buffett is famous for his love of cash flow-generating businesses.

Let’s take a look at three stocks in Berkshire’s portfolio that feature double-digit free cash flow margins (free cash flow as a percentage of sales).

Chevron (CVX)

Awning and sign of the Chervon gas station.

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Topping our list is oil and gas giant Chevron, which has generated $ 13.9 billion in free cash flow over the past 12 months and consistently posts free cash flow margins in the range of 10. %.

Stocks have been hot in recent months due to the strong rebound in energy prices, but with inflation continuing to rise there could be plenty of room to run.

Recent management initiatives to reduce costs and improve efficiency are starting to take hold and should be able to fuel shareholder-friendly actions for the foreseeable future.

As recently as last week, Chevron announced it would increase its buyback program to $ 5 billion per year, about 60% more than previous forecasts.

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The stock still offers an attractive 4.7% dividend yield, which investors can get their hands on using some extra money .

Moody’s (AGC)

Moody's logo on the new office building

Andrius Zemaitis / Shutterstock

With huge free cash flow margins exceeding 30 percent, the credit rating leader Moody’s is next on our list.

Moody’s shares have weathered the height of the pandemic incredibly well and have risen nearly 290% in the past five years, suggesting it is a recession-proof company on which is worth betting on.

Specifically, the firm’s entrenched leadership position in credit ratings, which leads to disproportionate cash flow and returns on capital, should continue to limit Moody’s long-term drawbacks.

Moody’s generated approximately US $ 2.4 billion in free cash flow over the past twelve months. And in the first nine months of 2021, the company returned $ 975 million to shareholders in the form of share buybacks and dividends.

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Moody’s has a dividend yield of 0.6 percent.

Coca Cola (KO)

Different types of Coca Cola drinks.  Coca Cola drinks are produced and manufactured by The Coca-Cola Company

MAHATHIR MOHD YASIN / Shutterstock

Rounding out our list, beverage giant Coca-Cola, which generated US $ 8.1 billion in year-over-year free cash flow and typically generates free cash flow margins above 20%.

The stock has seen many ups and downs in recent months, but patient investors should look to profit from the uncertainty in the near term. Coca-Cola’s long-term investment record continues to be supported by an unmatched brand presence, large-scale efficiencies and still attractive geographic growth tailwinds.

And the business is back to pre-pandemic levels.

In the most recent quarter, Coca-Cola reported sales of US $ 10 billion, up 16% from the same period a year earlier, largely due to an increase in 6% of the volume of unit cases.

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Coca-Cola shares offer a 3.1% dividend yield.

Generate income outside the volatile stock market

Aerial view of luxury yacht

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Even if you don’t like those specific stock picks, you should still look to implement Buffett’s proven strategy of investing in real assets that produce hard cash.

And you don’t have to limit yourself to the stock market.

For example, some popular investment services can lock in a passive income stream by investing in a wide variety of alternative assets, including fine art and commercial real estate .

You will benefit from diversified exposure to alternative asset classes that the big investment moguls typically have access to and, in some cases, you receive regular payments in the form of monthly or quarterly distributions.

This article was created by Wise Publishing. Wise is dedicated to providing information that helps readers navigate the complex landscape of personal finance. Wise only associates with brands he trusts and believes may be of use to the reader. This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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