) -- While most investors are jawing over the upcoming
Twitter (TWTR) IPO
, you can take some solace from knowing that the biggest gains come from something a little less exciting: cash.
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That may seem like a strange combination. After all, cash is supposed to be a drag on your portfolio, not a performance booster.
But you don't have to take my word for it; over the last decade, the top tier of cash-rich stocks worldwide generated total returns of 297%. That's
earned over the same period. Yes, cash is still king this year.
Part of that stellar outperformance has to do with what cash enables companies to do. Capital gains are great, but historically speaking, the majority of portfolio growth comes from other sources. Dividends, share buybacks, and debt repurchases all inject value directly into your shares, and on a year-to-year basis, they also account for around 50% of annual stock performance. Only companies with cash that have the wherewithal to boost those payouts on command.
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In short, cash provides options. Firms with cash can opt to increase shareholder value by paying a dividend or initiating a share buyback. Plus, they have the ability to take advantage of pricey M&A opportunities and internal investments.
Lots of companies have big cash positions right now. In fact, more than 25% of the S&P 500's valuation is made up of the record cash holdings on corporate balance sheets. That means that it pays to be a little more selective with which companies you consider cash-rich.
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To do that, we'll focus on firms that fit the tight set of quantitative criteria that beat the S&P by a factor of three. Today, we'll take a look
at five of them