A company that is regularly generating strong free cash flow (FCF) can use profits from its business operations to develop new products, pay down debts, or return cash to shareholders in the form of dividends or buybacks. So, while it's not unusual to see young companies post impressive stock gains despite the businesses not yet being profitable, it should come as no surprise that FCF performance tends to have a strong correlation with shareholder returns over the long term.

Investors with a buy-to-hold mindset can look at free-cash-flow histories and trends as a way to home in on stocks that are worth owning for the long haul. With that in mind, Apple (NASDAQ:AAPL), Disney (NYSE:DIS), and AT&T (NYSE:T) are three companies that produce impressive cash flows, return income to shareholders, and trade at non-prohibitive valuations -- characteristics that suggest they could be winners for your portfolio. 

Check out the latest earnings call transcripts for Apple, Disney, and AT&T.

A chart arrow over a pile of cash

Image source: Getty Images.

Apple

Free Cash Flow Yield FCF Payout Ratio Years of Uninterrupted Payout Growth Payout Growth Over the Last 5 Years
$61.98 billion 1.7% 23% 6 55.3%

Data sources: Apple; Yahoo! Finance, Dividend.com. Free cash flow and FCF payout ratio are based on results over the trailing-12-month period and forward annualized payout. Table by author. 

Apple's standout brand strength in the consumer technology hardware space has allowed it to command impressive price premiums and capture the lion's share of profits in the smartphone space. A recent slowdown for the company's handset line has dampened the company's near-term outlook, but Apple's business continues to be strong, and there's still substantial long-term upside with the stock trading at roughly 16 times this year's expected earnings.

Even with iPhone sales declining, strong growth for Apple's high-margin services segment lessened the blow in 2018. Momentum for services and other areas of the business combined with ongoing share buybacks to help drive the company's per-share free cash flow up roughly 19% last year.  

Apple's stellar cash flow has allowed it to build up a massive war chest with roughly $130 billion in cash net of debt, even after big share repurchasing pushes. While unevenness for the handset business will likely put a damper on FCF growth in the near term, it's possible that iPhone sales can be reenergized with the introduction of 5G and other more substantial feature upgrades. The company is also still scratching the surface of markets like wearables, connected home technologies, and software services, in addition to its fast-growing services segment. With a fast-growing dividend, low payout ratio, great balance sheet, and avenues to reenergizing its growth engines, it's too early to count Apple out. 

AT&T

Free Cash Flow Yield FCF Payout Ratio Years of Uninterrupted Payout Growth Payout Growth Over the Last 5 Years
$22.8 billion 6.6% 60.7% 34 10.9%

Data sources: AT&T, Yahoo! Finance, Dividend.com. Free cash flow and FCF payout ratio are based on results over the trailing-12-month period and forward annualized payout.

AT&T operates America's second largest mobile wireless network, the largest pay-TV service through its DirecTV subsidiary, and the country's largest wireline telephone service provider. Saturation in the wireless market, cord-cutting trends in TV, and declines for wireline are all presenting challenges, but the company continues to enjoy strong margins and generate impressive cash flow even under pressure. And thankfully, AT&T isn't standing still.

The company's businesses is moving ahead with a push into entertainment via its acquisition of Time Warner. Pairing its newfound strength in content with DirecTV and the AT&T mobile wireless network should create advantages when it comes to delivering video directly to phones and tablets. It's worth noting that the telecom business tends to be capital intensive, and AT&T is going to have to spend big to roll out the video and 5G network technology initiatives that could power its next growth legs. However, it offers a great dividend and underappreciated growth prospects, and it trades at just 8.5 times this year's expected earnings. 

Disney

Free Cash Flow Yield FCF Payout Ratio Years of Uninterrupted Payout Growth Payout Growth Over the Last Five Years
$9.48 billion 6.7% 58% 9 104.7%

Data sources: Disney, Yahoo! Finance, Dividend.com. Free cash flow and FCF payout ratio are based on results over the trailing-12-month period and forward annualized payout. 

Disney owns an unrivaled selection of valuable media properties, and that advantage has become even more pronounced following its $71 billion deal to buy Twenty-First Century Fox franchises, studios, and channels. The House of Mouse has also set the standard for leveraging entertainment assets across business channels, and it looks poised to retain a forefront position in the entertainment space as it continues to put its incredible franchise catalog to work across its core businesses and expands into new offerings like streaming.

The company's media networks have been facing pressure due to cord-cutting and rising content costs, but the segment still does impressive business, accounting for $6.6 billion of the company's $15.7 billion in operating income last year. Strong performance from the company's parks and resorts and movie segments is helping to pick up some slack in the land of TV, and the stock continues to have substantial upside potential as it trades at roughly 16 times the year's expected earnings.