Cash is king when the S&P 500 turns volatile. But we're not talking about cash sitting in a bank account, we're talking about cash pouring out of profitable companies.
Fortunately, analysts already have found the dozen S&P 500 companies poised to generate the most free cash flow this year. These include tech giants like Apple and Microsoft as well as giant energy companies like Exxon Mobil and Chevron, which are enjoying a windfall from rising oil prices. So says an Investor's Business Daily analysis from S&P Global Market Intelligence and MarketSmith. All told, these 12 companies will generate more than half a trillion dollars in cash just this year, analysts say.
Cash flow is increasingly important to investors. Investors crave a source of reliable dividends and stock buybacks. Plus, cash flow offers tangible fundamentals when investors are looking for less speculative plays as the S&P 500 gyrates. All this while cash gets harder to come by. The Federal Reserve continues to soak up money sloshing around the financial system.
"This will drain some liquidity from financial markets where the Fed has been worried about exuberant valuations recently," said Bill Adams, chief economist at Comerica Bank.
Looking At S&P 500 Cash-Flow Giants
Cash is turning into more of a rare commodity. But some S&P 500 companies are about to pour it out in earnest.
Just to put these 12 companies' mammoth cash-flow power into perspective: They're likely to generate nearly a third of the entire S&P 500's free cash flow this year. That's an incredible contribution from roughly 3% of the index by number of companies. Free cash flow is measured by calculating what's expected to be left from the company's cash from operations this year minus capital expenditures.
Apple is expected to remain the king of cash flow this year. Analysts think the company will throw off $107.8 billion in cash this calendar year, even after nearly $12 billion in capital spending. That's more than 30% greater than the free cash flow generated by No. 2 on the list: Google owner Alphabet.
Amazingly, though, analysts think Apple's cash earnings per share will actually fall nearly 2% this calendar year. Apple's standard adjusted earnings per share, however, is seen rising roughly 3%.
Microsoft, on the other hand, is expected to kick out nearly 17% growth in cash earnings per share this calendar year. And that amounts to more than $68.9 billion in free cash flow in the year after more than $26 billion in capital spending.
Cash Bonanza In S&P 500 Energy
It's not all that surprising to hear tech giants will kick off massive cash flow this year. But the rise of energy firms is head-turning. Keep in mind that these firms were losing money more than a year ago as the price of oil crashed during the initial Covid-19 outbreak.
Just look at Exxon Mobil. The oil giant, tossed out of the Dow Jones Industrial Average in 2020, is now poised to throw off nearly $40 billion in free cash flow this year. That's just behind Microsoft and ahead of communications services giant Meta Platforms and online retailing giant Amazon.com.
Meanwhile, cash earnings per share at Exxon are expected to jump more than 10% this year. It can easily afford its 4.3% dividend yield, which is more than double the S&P 500's yield. No wonder shares of the stock are up more than 35% this year, even as the S&P 500 loses ground.
Similarly, at Chevron, cash earnings are expected to jump some 17% this year. The company is expected to generate nearly $30 billion this year in free cash flow. And that's after spending nearly $12 billion on capital expenditures. Shares of Chevron are up nearly 40% this year. That's on top of the company's 3.5% dividend yield.
So, do you know where your cash is coming from this year? If not, you should.
Top Cash-Flow Generators In The S&P 500
Based on analyst forecasts for calendar 2022
| Company | Symbol | Free cash flow est. in 2022 (in billions) | Dividend yield | Sector |
|---|---|---|---|---|
| Apple | $107.8 | 0.50% | Information Technology | |
| Alphabet | $82.9 | 0.00 | Communication Services | |
| Microsoft | $68.8 | 0.80 | Information Technology | |
| Exxon Mobil | $38.1 | 4.25 | Energy | |
| Pfizer | $34.3 | 3.12 | Health Care | |
| Chevron | $29.8 | 3.48 | Energy | |
| Meta Platforms | $28.1 | 0.00 | Communication Services | |
| Amazon.com | $26.7 | 0.00 | Consumer Discretionary | |
| AbbVie | $25.5 | 3.45 | Health Care | |
| Johnson & Johnson | $23.2 | 2.39 | Health Care | |
| UnitedHealth Group | $21.8 | 1.12 | Health Care | |
| Walmart | $19.3 | 1.48 | Consumer Staples |
