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Earning a Great Return on Your Stocks

These companies have generated high cash returns and earnings yields.

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Investors often think of stocks and bonds as completely different animals. And, of course, the two types of securities play very different roles in a portfolio: Investors generally look to bonds to generate income and temper risk, while stocks are meant for long-term growth. But looking at stock valuations through a fixed-income perspective can be a useful way to make sure you're really earning what you should from your stock investments.

For this week's Five-Star Investor, we used Morningstar's  Premium Stock Screener to find companies with cash returns greater than the yield on the 10-year Treasury bond, which was holding steady at about 4.3% at the time of this writing. Cash return looks at a company's free cash flow as a percentage of its total enterprise value, or market capitalization plus debt. In other words, it measures the return a hypothetical buyer would earn by buying out the entire company (debt and equity) and skimming off the excess cash. About one fourth of the roughly 6,500 companies in Morningstar's equity database passed the first hurdle.

Amy C. Arnott does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.