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.
3. Growing 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 in order 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 firm'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 Canadian Solar -- a cash-burning company that CAPS Fools overwhelmingly dislike -- these businesses boast free cash flow-to-sales margins of 15% and above (also known as the Cash King Margin), and they've won the bullish support of our community.

Sound the trumpets! Here's another trio of Cash Kings from CAPS:

Source: Morningstar and CAPS.
TTM = trailing-12-month.

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 think about them.

Cherokee in Chief
With an impressive free cash flow-to-sales margin of more than  46%, Cherokee takes the honors as this week's most prolific cash king.

As a strict licensor of brand-name apparel, Cherokee's widely known trademarks include Cherokee, Sideout, and Carole Little. Strong retailer Target (NYSE: TGT) is its biggest partner, accounting for more than 40% of revenue for the past three years, and global growth opportunities keep its coffers stuffed with cash.

CAPS All-Star MagicDiligence elaborates on the bull case:

The company does no product design, no production sourcing, and no marketing -- this is left to the licensees. In effect, Cherokee replaces private label brands for these licensees. This is what's known as a "light" business model, requiring next to no capital investment and little expenses save for paying the few employees and maintaining the brand trademarks in various countries.

Gilead-er of the pack
The next cash flow monarch on our list is Gilead Sciences, one of the world's leading biopharmaceutical companies in the treatment of infectious diseases.

In recent years, Gilead has generated robust cash flows for shareholders by leveraging its dominant HIV franchise (which includes blockbuster Atripla, a combo of its Truvada pill and Bristol-Myers Squibb's (NYSE: BMY) Sustiva), relatively small exposure to patent expirations, and commercialization deals with the likes of GlaxoSmithKline and Pfizer.

CAPS member Wapato61 touches on Gilead's enviable financial flexibility:

The [AIDS] market is not going away and there is no scientific reason to believe that the disease will require other than treatment as a chronic condition. ... [Gilead] has the cash to buy any serious new competitor that may arise ... these competitors need deep cash pockets to bring their technology once early trials show promise, and [Gilead] can make a strong partner with an already-developed distribution system. 

Sultan of CDMA
Our last free cash flow ruler this week is QUALCOMM, the world's leading manufacturer of code division multiple access (CDMA) technology.

QUALCOMM's toll booth-like business model (telecoms like Verizon (NYSE: VZ) and Sprint Nextel (NYSE: S) pay royalties to use its CDMA network), its low-power Snapdragon architecture (geared toward the smartphone and netbook spaces), and powerful tailwinds in the form of 3G network upgrades (all CDMA-based) should continue to drive wealth-building dividends and buybacks for years to come.

CAPS member msftgev taps the stock as a bargain, to boot:

Qualcomm is a strong, multiyear growth story, with a dominant position in the wireless industry. They basically have three significant areas of growth, and that should lead to greater than 30% earnings growth for the next couple of years, which is faster than what the market is looking for. ... [T]he stock is attractively valued, and they actually have 20% of their market value in cash.

The Foolish bottom line
Free cash flow-generating companies like Cherokee, Gilead, and QUALCOMM 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 different stocks.

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