Over the weekend I wrote yet another article in which I referenced one of the greatest investors of all time. This investor sticks to his discipline of buying companies that generate lots of free cash and an outstanding return on invested capital.
In that article I wrote, "And as we all have experienced at one time or another, our emotions and feelings aren't the safest gauges for financial success. That's why the great investors like Warren Buffett remind investors repeatedly to 'Always have a margin of safety, in case something goes wrong' and to 'Decide on your investing values and criteria [disciplines] and stick to them no matter what!'"
It's no wonder Buffett and his holding company, Berkshire Hathaway (BRK.B) own over 8% of the outstanding shares of WFC. That equals ownership of nearly 15 billion shares, an example of massive commitment and faith in the company's leadership and goals.
Another example of a "cash-flow king" is Cisco Systems (CSCO), a technology and networking company that needs no introduction. CSCO will step into the earnings confessional again on Feb. 13.As of its last quarter ending Oct. 27, CSCO had trailing-12-month operating cash flow of $11.62 billion and operating cash flow of an astounding $45 billion. Its TTM revenue up to that point stood at nearly $47 billion. When you look at a one-year chart of CSCO and view the amount of cash-from-continuing-operations it has experienced through its ever-increasing return on invested capital you really get the picture. CSCO Cash from Operations TTM data by YCharts
Please notice how similar the above chart of CSCO looks to WFC's one-year chart of the same metrics. These levels of capital efficiency allow strong companies like CSCO and WFC to grow organically and by acquisition. It also allows them to pay a generous total return dividend through cash payouts and stock buybacks. WFC pays an annual 88 cents per share dividend. If you're fortunate and patient enough to buy the stock when it trades for $33 you'll be paid a yield to price of almost 2.7%. That represents a payout ratio of only 25%, and that often indicates that as revenue and total cash grows so will the dividend and the share price.
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