Cold, hard cash is real, and can be used by shareholder-friendly management teams to:

  • Pay dividends.
  • Repurchase shares.
  • Grow the business organically.

Investing legend and Berkshire Hathaway CEO Warren Buffett is famous for his love of cash flow-producing businesses.

Let’s take a look at three stocks in Berkshire’s portfolio that boast double-digit free cash flow margins (free cash flow as a percentage of sales).

Chevron (CVX)

Chervon gas station canopy and sign.
Ken Wolter/Shutterstock

Leading off our list is oil and gas giant Chevron, which has generated $11.2 billion in free cash flow over the past 12 months and consistently posts free cash flow margins in the ballpark of 10%.

The shares have been sluggish in recent months on continued weakness in energy prices, but contrarian investors might want to take a closer look.

Management’s recent initiatives to cut costs and improve efficiency are starting to take hold and should be able to fuel shareholder-friendly actions for the foreseeable future.

In the most recent quarter, Chevron announced that it would reinstate its annual buyback program due to a combination of improved operational performance and lower spending.

“Our free cash flow was the highest in two years due to solid operational and financial performance and lower capital spending,” said Chairman and CEO Mike Wirth. “We will resume share repurchases in the third quarter at an expected rate of $2-3 billion per year.”

The stock currently offers an attractive dividend yield of 5.6%, which investors can pounce on using just their spare change.

Moody’s (MCO)

Moody's logo on new office building
Andrius Zemaitis/Shutterstock

With whopping free cash flow margins above 30%, credit ratings leader Moody’s is next up on our list.

Moody’s shares have performed consistently well during the pandemic, up about 85% over the past two years, suggesting that it’s a recession-proof business worth betting on. Specifically, the company’s well-entrenched leadership position in credit ratings, which leads to outsized cash flow and returns on capital, should continue to limit Moody’s long-term downside

Moody’s has generated about $2.2 billion in trailing twelve-month free cash flow. And over the first half of 2021, the company has returned $735 million to shareholders through share repurchases and dividends.

“Moody’s impressive second quarter 2021 results reflect the strong demand for our increasingly comprehensive suite of risk assessment offerings as we help our customers make better decisions about a wider range of risks,” said President and CEO Rob Fauber in the company’s most recent earnings release.

Moody’s has a dividend yield of 0.7%.

Coca-Cola (KO)

Various type of Coca Cola drinks. Coca Cola drinks are produced and manufactured by The Coca-Cola Company
MAHATHIR MOHD YASIN/Shutterstock

Rounding out our list is beverage giant Coca-Cola, which has produced $8.8 billion in trailing twelve-month free cash flow and habitually delivers free cash flow margins above 20%.

The stock has been sluggish over the past several weeks, providing long-term investors with an enticing entry point. Coca-Cola’s long-term investment case continues to be backed by an unrivaled brand presence, massive scale efficiencies, and still-attractive geographic growth tailwinds.

And the company is back to operating at pre-pandemic levels.

In the most recent quarter, Coca-Cola posted revenue of $10.1 billion, up from the same period in 2019, driven largely by an 18% jump in global unit case volume.

“Our results in the second quarter show how our business is rebounding faster than the overall economic recovery, led by our accelerated transformation,” said Chairman and CEO James Quincey. “As a result, we are encouraged and, despite the asynchronous nature of the recovery, we are raising our full year guidance.”

Coca-Cola shares offer a dividend yield of 3%.

Real estate cash flow

Even if you don't like these specific stock picks, you should still look to implement Buffett's time-tested strategy of investing in real businesses that produce cold, hard cash.

And you don't have to limit yourself to the stock market.

For instance, some popular investing services make it possible to lock in a steady rental income stream by investing in premium real estate properties — from commercial developments in LA to residential buildings in NYC.

You’ll gain exposure to high-end properties that big-time real estate moguls usually have access to, and you’ll receive regular payouts in the form of quarterly dividend distributions.

About the Author

Brian Pacampara, CFA

Brian Pacampara, CFA

Associate Editor, Investing

Brian is an associate editor for MoneyWise. A long-time stock junkie, his work has appeared in The Motley Fool, Seeking Alpha, and Yahoo Finance. He believes in owning "Forever Stocks" — a rare group of businesses that have paid out dividends for decades. Brian holds the Chartered Financial Analyst (CFA) designation.

You May Also Like

ESG Investing: Why Progress and Profits Aren’t Mutually Exclusive

Investing in an asset like farmland can help you meet more than just your financial goals.

Looking to Protect Your Portfolio Against Inflation? Don’t Overlook Farmland

As a commodity-producing asset, farmland is an excellent hedge against inflation.

Here's How to Pay for That Perfect Patio Escape This Year

Don’t settle — with one move, you can make your staycation sensational.

Here’s How to Pump Up Your Home Gym While Trimming Down the Cost

Don’t sweat it — use this effortless solution to find better deals.