3 Free Cash Flow Dividend Stocks That Will Keep Passive Income Investors’ Pockets Lined
Passive income investors should want to know whether a business has a sufficient inflow of capital to cover its expenditures and then pay dividends. A simple, helpful metric for this is free cash flow (FCF), which is calculated as a company’s operating cash flow minus its capital expenditures. In other words, FCF measures a company’s […] The post 3 Free Cash Flow Dividend Stocks That Will Keep Passive Income Investors’ Pockets Lined appeared first on 24/7 Wall St..
Key Points
-
PepsiCo’s free cash flow compares surprisingly well to soda king Coca-Cola.
-
Ford is a strong dividend payer that, unlike some peers, has positive free cash flow.
-
The Southern Company’s positive free cash flow and competitive dividend yield should entice investors.
-
Are you ahead, or behind on retirement? SmartAsset’s free tool can match you with a financial advisor in minutes to help you answer that today. Each advisor has been carefully vetted, and must act in your best interests. Don’t waste another minute; get started by clicking here here.(Sponsor)
Passive income investors should want to know whether a business has a sufficient inflow of capital to cover its expenditures and then pay dividends. A simple, helpful metric for this is free cash flow (FCF), which is calculated as a company’s operating cash flow minus its capital expenditures.
In other words, FCF measures a company’s cash generated from business operations minus the money it spent on buildings, equipment, software, and so on. After determining a company’s FCF over the past 12 months, investors can compare it to the FCF of the company’s peers.
It’s a good thing when a business’s FCF compares favorably to its peers; it’s even better when that company takes its leftover capital and rewards the shareholders with attractive dividend payments. Three companies stand out in this regard, and now we can shine a spotlight on several FCF standouts that offer delectable dividends in 2025.
PepsiCo
Much like an ice-cold can of soda, the quarterly dividend payouts from PepsiCo (NASDAQ:PEP) can be quite refreshing. For consumers, PepsiCo offers highly recognizable food and beverage brands like Lay’s, Pepsi-Cola, Doritos, Quaker, and Gatorade; for investors, the company serves up a tasty forward annual dividend yield of 3.63%.
Getting cash payments every three months is great, but this begs the question of whether PepsiCo can easily afford to shell out those quarterly distributions. But consider this: if the company’s FCF is strong, this suggests that PepsiCo’s income far exceeds its expenditures, so it should be able to continue paying out its dividends.
I’ve seen commentators use complex formulas for this, such as free cash flow yield. That’s fine, but a formula doesn’t necessarily tell you how a business’s cash flow compares to the company’s peers within the same industry.
Therefore, instead of using fancy formulas, I will compare the FCF of PepsiCo to two well-known competitors: Coca-Cola (NYSE:KO) and Keurig Dr Pepper (NASDAQ:KDP). To begin, PepsiCo has trailing 12-month (TTM) FCF of $7.189 billion.
This figure might sound impressive, but we need to put it into context. For comparison, PepsiCo’s biggest rival, Coca-Cola, has TTM FCF of $4.741 billion. I’ll bet you didn’t expect PepsiCo to beat Coca-Cola, but the financial markets are always full of surprises.
Furthermore, another major rival of PepsiCo, Keurig Dr Pepper, has TTM FCF of $1.597 billion. So now, PepsiCo’s looks like the undisputed heavyweight champion when it comes to cash flow — and for passive income investors, PepsiCo should remain a dividend champion for the foreseeable future.
Ford
Another famous firm that can line your pockets every quarter with dividend distributions is Detroit-based automaker Ford (NYSE:F). A manufacturer of both conventional and electric cars and trucks, Ford is among the “Detroit Three” automakers that also include General Motors (NYSE:GM) and Stellantis (NYSE:STLA).
Ford stock has come down since the summer of 2024, but there’s a silver lining here. In particular, the reduction of the Ford share price has helped increase the company’s forward annual dividend yield. Believe it or not, Ford’s dividend yield currently stands at a hefty 7.39%.
Can Ford continue to pay out its high-powered dividends every quarter, though? Passive income collectors can rest assured, as Ford’s TTM FCF is impressive at $6.739 billion.
I can call this number “impressive” because it compares favorably to Ford’s Detroit Three peers. You may be surprised to learn that General Motors’ TTM FCF is deeply negative, at -$5.98 billion.
Similarly, Stellantis’ TTM FCF is deep in the red, at -$7.052 billion. Suddenly, Ford looks like a cash flow cow that passive income investors can milk for yield each and every quarter.
The Southern Company
Finally, there’s a utilities-sector giant that likes to return capital to its loyal shareholders every three months. I’m referring to The Southern Company (NYSE:SO), an electricity provider that is often just referred to as Southern.
Sure, your electric bill may be high this summer, but you can offset those costs with Southern’s quarterly cash payments. To be more specific, Southern offers a forward annual dividend yield of 3.15%.
So far, so good — but is Southern’s cash flow as electrifying as the company’s yield? The answer is yes, as Southern’s TTM FCF is $833 million.
That number might not seem electrifying at first glance. However, we should compare Southern’s TTM FCF to similar utilities firms:
- Duke Energy (NYSE:DUK): $48 million
- Consolidated Edison (NYSE:ED): -$1.157 billion
- Dominion Energy (NYSE:D): -$7.18 billion
As you can see, when it comes to cash flow, Southern is on the northern end of the spectrum. Like PepsiCo and Ford, Southern fits squarely into the category of reliable dividend distributors with sufficient cash flow to continue offering their enticing quarterly payouts.
The post 3 Free Cash Flow Dividend Stocks That Will Keep Passive Income Investors’ Pockets Lined appeared first on 24/7 Wall St..
