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Investing in Cash Cows

Thursday, November 23, 2006
While the market goes crazy about technology stocks, energy, and pharmaceuticals, there are many industries that are not making the headlines. These companies are just trudging away making cash for their owners. These low glamour, and often boring companies have had outstanding track records, and almost anyone could have picked them.

My first example of a cash cow is Procter and Gamble Co. (PG) P&G is a company that has 11 Billion dollars on their cash flow sheet from operating activities. They grow year over year at a fairly consistent pace, and they know how to market themselves and distribute their product like no one else can.

One of the better aspects of this company is that when their profits rise, so do their dividends. If you look back at 1985, a share would have cost $3.5469 adjusted for splits. With that share you would now be entitled for $1.24 dividend per year, or a 34% yield.

Another industry that is often overlooked is the insurance industry. A lot of these financial companies pull in a good amount of cash, and have good return in comparison to their market cap. They have also experienced sustained growth over the long term.

That is not to say that you should be investing in P&G or in the insurance industry. This article was intended to get you looking outside of the headlines and inside the financial statements of companies. Companies with impressive returns will often surprise you and will often seem boring. I am looking at these investments for the long term as possible retirement savings, and companies that are always in the headlines seem to be too volatile and often more smoke and mirrors than actual profits. While hype is a big business, the only thing that sustains itself for the long run on Wall Street is cash.

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