3 Strong Companies Showing You the Money: Apple, PepsiCo, and CVS

Apple, PepsiCo, and CVS Caremark are three rock-solid companies making big capital distributions, and this means they are well positioned for superior returns over time.

May 6, 2014 at 4:00PM

Cash is king, and companies making big cash distributions tend to outperform the market in the long term. Apple (NASDAQ:AAPL), PepsiCo (NYSE:PEP), and CVS Caremark (NYSE:CVS) offer solid fundamentals while rewarding shareholders with generous dividends and stock buybacks, and this means they are well positioned for superior returns in the years ahead.

The iPhone is still growing
The smartphone and tablet markets may be maturing in developed countries, but that doesn't mean Apple is out of growth opportunities. The company is still the undisputed quality leader in the industry, and brand differentiation provides a key source of competitive strength for Apple in the war against cheaper alternatives.

Captura De Pantalla

Source: Apple.

Apple reported better-than-expected sales and earnings figures for the quarter ended on March 29, and the iPhone was the big growth driver for the company during the quarter, with 43.7 million units in sales, a 17% increase versus the same quarter in 2013.

According to CEO Tim Cook, Apple is gaining market share in smartphones, not only in developed countries, but also in high-growth emerging markets: "We gained smartphone share in many developed and emerging markets including the U.S., the UK, Japan, Canada, Germany, France, Vietnam, and Greater China, just to mention a few. In fact, we established a new all-time record for total iPhone sales in the BRIC countries." 

Cook believes Apple is undervalued at current prices, which sounds quite likely considering that the company trades at a P/E ratio around 14.3, versus an average multiple in the area of 18 times earnings for companies in the S&P 500 index.

The company is putting its big pockets to good use by capitalizing on the opportunity to repurchase stock at attractive valuation levels. Apple returned almost $21 billion in cash via dividends and share repurchases during the last quarter, and it expanded its capital return program to more than $130 billion until the end of 2015. 

PepsiCo tastes good
PepsiCo is a global juggernaut in the soda and snacks business. The company owns 22 brands generating more than $1 billion in annual revenues around the world, and it has successfully expanded into healthier product alternatives with brands such as Tropicana, Quaker, and Gatorade, among others. 

Pepsicomega

Source: PepsiCo.

This means that PepsiCo is well positioned to adapt and thrive over the coming years as consumers continue paying increased attention to the nutritional qualities of the food and drinks they consume.

PepsiCo has an immaculate track record of dividend growth; the company has raised distributions for the past 42 consecutive years in a row, including a big 15% increase announced in February. The dividend yield currently stands at more than 3%, which is quite an attractive return for a solid dividend powerhouse such as PepsiCo.

In addition, management is planning to return approximately $5 billion in share repurchases during 2014, bringing the capital distribution program to $8.7 billion when including both dividends and buybacks, a huge 35% increase versus 2013. 

Healthy returns from CVS Caremark
CVS Caremark benefits from a smart business model, as the company is a major pharmacy retailer and also a leadiing pharmacy benefit manager. This means economies of scale, negotiating power with suppliers, and a rock-solid competitive position for a market leader operating in such a stable and dependable industry. 

Cvs

Source: CVS Caremark.

Favorable demographic trends, broadening health care insurance coverage, and technological advancements in the industry should mean growing health care demand in the years ahead, and CVS Caremark is in a position of strength to benefit from those tailwinds.

The dividend yield is not very impressive at 1.5%, but the company has delivered remarkable dividend growth over the past decade: What was a quarterly payment of less than $0.029 per share in 2003 has now multiplied into $0.275. This includes a big increase of 22% announced in December of last year. Besides, the payout ratio of only 24% of earnings leaves a lot of room for further dividend growth in the years ahead. 

CVS Caremark expects to complete approximately $4 billion in share repurchases during 2014, and the company has recently raised its repurchase authorization to up to $6.0 billion.

Foolish takeaway
Dividends and buybacks are powerful return factors, but they don't come out of thin air. A company needs to have the fundamental strength to produce growing cash flows over time to make sustained capital distributions. Apple, PepsiCo, and CVS Caremark are three rock-solid businesses generating dependable cash flows, and this means they are well positioned to deliver market-beating returns over time.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Andrés Cardenal owns shares of Apple. The Motley Fool recommends Apple, CVS Caremark, and PepsiCo and owns shares of Apple and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers