3 Top-Rated Cash Kings

Welcome back to the world of the Cash Kings, where we highlight businesses that generate a healthy dose of free cash flow. Why is cash flow so important? Because it gives management the opportunity to boost shareholder value through actions like:

1. Paying dynasty-building dividends;

2. Buying back shares at attractive prices; and

3. Growing the business organically without having to borrow money or sell shares.

A Fool's guide to free cash
Investing, after all, is about putting money up front today to get more of it in return tomorrow. Here at the Fool, we're firm believers that free cash flow, as opposed to traditional accounting earnings, is the best gauge of a company's health and profitability (or lack thereof).

So, with these cash flow lessons deeply engrained in your Foolish subconscious -- or maybe just bookmarked as a "favorites" page -- I'll highlight three more cash-flow rulers of our Motley Fool CAPS kingdom.

Unlike MannKind -- which is a cash-burning company that CAPS Fools overwhelmingly dislike -- these are businesses with free cash flow-to-sales margins of 15% and above (also known as the Cash King Margin) that our community is pretty bullish about.

So, sound the trumpets! Here's another trio of Cash Kings from CAPS:

As always, don't consider these stocks as formal picks but rather as suggestions worth further investigation. After all, due diligence is the Fool's way to riches.

But for starters, here's a quick summary of these cash-throwing kings, and what some of their loyal CAPS followers feel about them. 

Health-care caliph    
With an impressive free cash flow-to-sales margin of more than 20%, Abbott Labs takes the honors as this week's most prolific cash king.

As one of the planet's largest and most diversified health- care companies, Abbott has a patent-protected roster of drugs, a leading nutritional segment, and potent global growth opportunities -- especially with its new purchase of India-based Piramal Health -- to keep its war chest stuffed with cash.

Last month, CAPS member goldseth wrote that Abbott's recent patent loss could be a bargain hunter's gain:

Valuation, strong dividend yield/growth, strong cash flow. ... I believe the stock is undervalued due to Depakote patent loss and slowing Humira growth. [In my opinion], these concerns are more than offset by global expansion, strategic acquisitions, new indications for Humira, and the promising vascular lines.

Toothpaste tycoon
The next cash flow monarch is Colgate, the ultra-focused consumer products giant.

For years, Colgate has leveraged its dominance over rivals like Procter & Gamble (NYSE: PG) and Church & Dwight (NYSE: CHD) in the toothpaste business, its popular brands (Colgate, Palmolive, Irish Spring, Ajax), and a laser-like focus on efficiency to provide wealth-building dividends and buybacks.

CAPS member ipfmanager comments on the stock's stability:

Such strong [tailwinds] with currency, taxation, globalization, population increase. ... They have almost zero legislative risk, competition, or business risk. Besides being one of the easiest companies to run and maintain, they will outpace the S&P by the sheer fact that industries shift over time, but everyone needs their ever increasing product line.

Commodities khan
Our last free cash flow ruler this week is Australia-based BHP Billiton, the world's largest diversified mining company. 

BHP's strong diversification (across countries, products, and markets), attractive portfolio of low-cost, high-quality assets, and strategic alliances with the likes of Rio Tinto (NYSE: RTP) and Total (NYSE: TOT) are what drive relatively stable cash flows for it.

CAPS member DarthMaul09 touches on BHP's big-cap characteristics:

This company gives you the maximum commodity exposure. ... If you believe that commodities will hold their value better than any bonds, then this company needs to [be] part of your portfolio. Its main negative is that it is a bit big and moves more like an aircraft carrier than a speedboat, which means you have to be patient and wait for this stock to rise above the S&P 500. 

The Foolish bottom line
Free cash flow-generating companies like Abbott, Colgate, and BHP Billiton are always among my top candidates to research further. Our Motley Fool CAPS intelligence database is a great place to look for your own Cash Kings or read how your fellow Fools feel about thousands of stocks.

Click here to join the forward-thinking CAPS community free of charge.