Typically speaking, large global companies amass billions of dollars in revenues and profits in a given year. Many of these companies, but not all of them, plan to return some of the cash to their shareholders.
In an uncertain global environment and with recent volatility in the market, investors should consider buying global giants with track records of not only outperforming, but initiating shareholder-friendly activities as well.
At first glance Ab-InBev (BUD +0.57%), Qualcomm (QCOM 1.01%), and Schlumberger (SLB +0.36%) have little in common with one another, given the radically different industries in which they operate. However, investors could conclude that these three giants are leaders in their respective fields and have track records of generating returns for shareholders in the forms of either share appreciation, dividends, buybacks, and accretive merger and acquisition activities.
A refreshing stock
Ab-InBev is the largest brewer in the world by both volume and profit. In 2013, the company reported production of 450 million hectoliters, nearly twice that of its closest competitor, SABMiller.
Ab-InBev is the No. 1 producer by market share not only in the U.S., but also in Brazil and Mexico. These three regions contribute the majority of the company's growth and around 80% of the company's overall profit.
Recently, the company demonstrated how it utilizes its cash for bottom-line boosting, accretive deals. The company acquired China's eighth-largest brewer, Siping Ginsber Draft Beer, on April 11. The China-based operator has an annual production capacity of around 80 million liters.
As such, the company expanded its presence in China, where beer volumes grew by 9.4% in the recent quarter, which translated into a market share gain of 70 bps to 15.6%.
Prior to the Siping Ginsber acquisition, AB-InBev paid $5.8 billion for South Korea's Oriental Brewery Co, the country's biggest brewer.
Ab-InBev is so large that the $5.8 billion acquisition represents less than half of the company's 2013 free cash flow of $12.43 billion. This is a drop in the bucket compared to the over $56 billion of free cash flow the company has generated since the combination with Anheuser-Busch. Ab-InBev has sufficient cash remaining for additional acquisitions, share buybacks, or even dividend hikes over the coming years.
The future of mobile
Qualcomm will benefit tremendously from the growing global 4G Long Term Evolution, or LTE, adoption cycle.
Ehud Gelblum of Citigroup noted that only 3% of worldwide wireless subscribers should be on LTE by the end of 2013, with this figure ballooning to north of 40% by 2018. In fact, the analyst noted that the upcoming 2G to 3G and 4G conversion is "conservatively" worth $7 billion to Qualcomm's top line (i.e revenues) and it will contribute an additional $2.00 to earnings per share. The analyst reached these figures based on his belief that LTE subscriber numbers should grow at a 55% compound annual growth rate through 2019.
Investors don't have to wait until 2019 to see a return as the company is already experiencing impressive growth today. According to Gartner Qualcomm "significantly" outgrew its peers in the mobile handset market in 2013 due to its "market-leading position in smartphone application processors and LTE baseband processors."
Back in late 2013, Qualcomm's management committed to return 75% of the company's future free cash flow in the form of dividends and this includes a $4 billion buyback authorization for fiscal 2014.
According to Qualcomm CEO Paul Jacobs, the company has an objective of bolstering dividends to shareholders at a faster pace than the rate at which its earnings are rising. With no major acquisitions planned, Qualcomm plans to use its $8.1 billion in cash and short-term investments to fund dividends and share buybacks. This makes continued earnings growth and multiple re-expansion a likely outcome.
Multi-billion cash flow growth
Schlumberger is one of the undisputed global leaders in oilfield services. This encompasses more than a dozen product lines that address every phase of the exploration, drilling, and production cycle. In 2013, its free cash flow reached $5.5 billion before dividends while the company dominated all of its markets.
Schlumberger's top line continues to grow at a time when the company is lowering its capital expenditures and consumption of working capital through initiatives to improve asset utilization and inventory management. As such, investors could reasonably assume that the company's free cash flow will only grow over the coming years.
Schlumberger authorized a $10 billion share repurchase program back in July of last year with an original completion target of five years. During the company's first-quarter 2014 conference call in late April, the company announced that it is now aiming to complete the program in two and a half years.
The accelerated cash return to shareholders through share repurchases is not the only shareholder-friendly initiative the company is undertaking.
Schlumberger has been no stranger to dividend raises. During the company's first-quarter conference call, management said that it plans to renew dividend levels each year, as it has done in the past. Future dividend increases will follow 2013's 15.6% increase and increases of 10% in 2012 and 19% in 2011.
Bottom line
Cash is king and investors can benefit from companies with clean balance sheets and proven track records of distributing cash back to shareholders and/or creating value and growth through multi-billion dollar acquisitions.
Investors should find these established companies to have better investment profiles than many of the "momentum" names, some of which have lost more than 25% of their value in the past few months. Meanwhile, Ab-InBev, Qualcomm, and Schlumberger continue to trade at (or near) 52-week highs.
