Top 3 Cash-Generating Companies You Should Know

Strong cash flows indicate financial stability, allowing a company to reduce debt, take advantage of growth opportunities, and pay dividends.

These companies also have a better ability to weather economic downturns, which is also an advantage for investors in the long term.

And for those looking for money machines, three mega-cap giants — Microsoft MSFT, Apple AAPL, and Alphabet GOOGL — all fit these criteria well. Let’s take a closer look at where each company stands.

Apple Stocks Rebound

After a slow lackluster start to 2024, Apple shares are back in fashion again last month. They rose 15%, significantly outperforming the S&P 500. Positive news about iPhone shipments to China boosted the results, while recent comments about AI also helped.

The company has been profitable for many years and has provided many benefits over the years, including dividend increases. In fact, Apple increased its quarterly dividend in its latest quarterly announcement, marking its 12th consecutive year of dividend increases.

Shares yield just 0.5% annually, but the company’s five-year dividend growth rate of 4.9% helps make up the difference.

Analysts have upgraded earnings estimates for this mega-stock, earning it a favorable Zacks Rank #2 (Buy). While the correction is not severe, it is undoubtedly a positive development for the stock and provides the fuel it needs to continue its outperformance.

Microsoft Reports Strong Cloud Results

Microsoft shares led the market throughout the year, rising nearly 25%, with consistently positive sentiment following the quarterly earnings report. Analysts have been continually revising upwards their earnings estimates for the current fiscal year over the past year. The expected year-over-year increase is $11.77 per share, which equates to an increase of about 9%.

Analysts are optimistic about the recent strength of cloud, and the company should benefit greatly from AI. Cloud revenue grew 23% year-over-year in the most recent period, reflecting a reacceleration and pleasantly surprising investors.

While many were concerned about the cloud slowdown it experienced at one point, recent results point to an overall brighter outlook for the future. Like AAPL, strong cash flows contribute to a shareholder-friendly company, and Microsoft boasts a 10% annualized dividend growth rate over five years.

Alphabet remains in growth mode

Alphabet shares have performed well through 2024, rising nearly 40%. Like MSFT, revision trends for the current fiscal year are particularly positive, with earnings of $7.60 per share expected to be up 14% year over year.

The company pleasantly surprised investors in April when it announced the introduction of a quarterly dividend. Alphabet’s cash generation will allow for future dividend increases, with the company posting $16.8 billion in free cash flow in the most recent period.

And, unsurprisingly, the megacap remains firmly in growth mode, with consensus estimates suggesting 14% growth in sales and 31% growth in earnings in fiscal 2024. Growth is expected to continue into fiscal 2025 with earnings and revenues expected to grow 13% and 12%, respectively.

Bottom Line

Companies with strong cash generation make great investments because they have enough cash to fuel growth, pay dividends, and easily pay off debt. And, as we said above, these companies are better equipped to handle a downturn, which is definitely a plus.

For those looking for cash-generating companies, the three companies mentioned above (Microsoft MSFT, Apple AAPL, Alphabet GOOGL) all fit the bill well.