3 Top Cash Cows to Buy Right Now

Stop speculating! This group of cash cows, including Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP), can help build your wealth the prudent way.

| More on:

Hey there, Fools. I’m back again to highlight three companies that generate boatloads of free cash flow. Just to remind everyone, I do this because free cash flow is used for shareholder-friendly moves such as

While speculating on small-cap cash burners can be profitable over the near term, buying into high-quality cash producers is still the most prudent way to build long-term wealth.

So, without further ado, let’s get to this week’s “cash cows.”

Electric opportunity

First up, we have TransAlta (TSX:TA)(NYSE:TAC), which has generated an impressive $496 million in free cash flow over the past 12 months. Year to date, the power utility is down 4%, while the S&P/TSX Capped Utilities Index has fallen 11% over the same time period.

The company continues to benefit from strong performance from its Alberta assets. Over the first six months of 2018, free cash flow increased more than $200 million year over year to $334 million. And with that cash, management lowered its net debt by $345 million, bringing its net debt/EBITDA ratio to three. Since 2015, the company has eliminated $1.2 billion in debt from its books.

When you combine that de-risking progress with a solid dividend yield of 2.3%, TransAlta’s risk/reward trade-off looks highly enticing.

Stay on track

Our next cash cow is Canadian Pacific Railway (TSX:CP)(NYSE:CP), whose trailing 12-month free cash flow clocks in at $950 million. Over the past year, shares of the railway giant are up 28% versus a gain of 10% for the S&P/TSX Capped Industrials Index.

CP Rail has benefited from record traffic in crude oil shipments of late and is sharing the wealth with shareholders. In Q2, the company generated $331 million in free cash, up nicely from $274 million a year ago. That helped prompt management to announce a new share-repurchase plan yesterday of up to 5.7 million common shares (or about 4% of CP’s public float).

Since 2014, CP has bought back about 25% of its public float. Those consistent repurchases, coupled with a healthy and steady dividend, make CP a genuine shareholder-friendly cash cow.

Shopping spree

Our final cash cow this week is RioCan Real Estate Investment Trust (TSX:REI.UN), which has generated $294.5 million in funds from operations — the key cash flow metric for REITs — over the first six months of 2018. Year to date, shares of the shopping mall operating are down 2% versus a loss of 5% for the S&P/TSX Composite Index.

While retail might feel like a scary place in today’s online world, RioCan’s business is holding steady. In addition to strong cash flow, the company’s committed retail occupancy in Q2 increased 30 basis points to 97%. Moreover, same-property operating income — another key metric for REITs — managed to increase 2% year over year.

Given RioCan’s still-stable business model and operating cash flow, the stock’s current yield of 6% seems too good to ignore.

Fool on.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Brian Pacampara owns no position in any of the companies mentioned.   

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »