3 Blue Chips Showing You the Money

Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As stock investors we are part owners in a company; this gives us certain political and economic rights in that business. Some companies stand out from the rest when it comes to capital allocation, permanently rewarding investors with dividend increases and share buybacks so that the owners receive a big chunk of the cash flows generated by the business. Three high quality companies showing you the money.

Big Blue, Big Buybacks

IBM (NYSE: IBM) has implemented one the most amazing transformations in the history of corporate America when management decided it was time to move away from the commoditized hardware business and into more profitable areas like software and services back in the nineties. This has produced a spectacular increase in profit margins over the years and has been a big driver of earnings expansion for the company.

<img src="http://g.fool.com/editorial/images/17513/ibm_margins_large.png" />

But it doesn´t end there, more profitability has also allowed IBM to heavily reward investors with a big  share repurchase program in addition to growing dividends. Share count reduction has been another big plus for IBM investors over the years: when you own a piece of a company, and the company is sliced in fewer pieces, each piece increases its value as it has the right to a bigger proportion of the company´s earnings.

<img src="http://g.fool.com/editorial/images/17513/ibm_large.png" />

IBM pays a modest dividend yield of 1.7%, which doesn´t sound like anything to write home about. But when you consider share repurchases in addition to those dividends, Big Blue stands out like a very shareholder friendly corporation.

Energetic Dividends

The energy industry is quite cyclical, capital intensive, and always exposed to the volatility coming from fluctuating commodity prices. That´s why it’s not easy to find companies with steadily rising dividend payments and active stock buyback programs, but ExxonMobil (NYSE: XOM) shines among its peers due to its superior profitability and capital allocation policies.

Being bigger that its peers, and quite conservative when it comes to competing for new exploration projects, Exxon won´t probably be the company which the highest growth rate in the industry, but it can certainly be considered the one with the highest quality. The company issued shares to finance the acquisition of XTO in 2010, but even in spite of that it has reduced its share count by more than 30% over the last 10 years.

<img src="http://g.fool.com/editorial/images/17513/xom__large.png" />

Exxon has increased dividend payments each year for more than three decades, including all kind of scenarios when it comes to economic growth and energy demand. Exxon´s dividend yield of 2.6% is not the highest in the industry, but it can be considered the safest one.

Always Coca-Cola

Coca-Cola (NYSE: KO) is a very special company from multiple pint of views. It owns the most valuable brand in the planet according to Interbrand, and an undisputed leadership position in the global soft drinks market. That powerful brand, coupled with a gigantic distribution network, protect Coke from the competition, and they also come in very handy when it comes to introducing new products into the global consumer markets.

The company has increased its dividends in each of the last 50 years, which is a remarkable track record of economic resiliency and financial strength. Think about it for a second, in 1962 the Beatles released their first single, Love me Do. If you had bought shares of Coke back them, you would have received increasing dividends in each of the following years, regardless of recessions and all kind of political scenarios.

By historical standards, Coca-Cola presents two very exciting characteristics, while dividends are at new highs; shares outstanding are at new lows. That speaks wonders about the company´s focus on returning its big and growing cash flows to shareholders.

<img src="http://g.fool.com/editorial/images/17513/ko_div_sha_large.png" />

Bottom Line

A company that makes a lot of money is a wonderful thing, and a company which distributes a big chunk of that money can be an even better investment alternative.


Andres Cardenal owns shares of IBM. The Motley Fool recommends Coca-Cola. The Motley Fool owns shares of International Business Machines.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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