Some investors believe that a business’s cash flow is the most critical aspect of a company’s financials instead of revenue or profit, as cash is needed for any business to survive. Free cash flow (FCF) can be defined as the cash left over after the business spends on capital expenditure. FCF allows the business to reinvest the cash to grow the business in the future.
Although cash sitting on the balance sheet generates low returns compared to when the cash is invested in the business, having extra cash is preferable to having high levels of debt. Here are 3 Asian listed companies that generate strong FCF.
#1 Singapore Exchange Limited (SGX:S68)
Singapore Exchange Limited (SGX: S68), or SGX, is Singapore’s only stock exchange operator. The group runs a platform for the buying and selling of securities such as equities, fixed income, derivatives, and foreign exchange. SGX also provides listing, clearance, and settlement services for listed companies.
For the past 5 years, SGX has very consistent FCF generation, with an average of nearly SGD 350m per year. This allows the company to pay steady dividends and to grow its business. It has a dividend yield of 3.4%.
#2 Hong Kong Exchanges and Clearing Limited (388.HK)
If you are a regular follower of our website, Hong Kong Exchanges and Clearing Limited (388.HK), or HKEX, needs little introduction. As the sole stock exchange operator in Hong Kong, the company provides facilities for trading and clearing of securities, and also derivatives in equities, commodities, fixed income and currencies.
During the last financial year, HKEX reported a 20% increase in revenue to HKD 15.9 billion, while profit attributable to shareholders rose 26% year-on-year to HKD 9.3 billion. The annual dividend increased by 24% in line with the increase in profit. The stock currently has a dividend yield of 2.8%.
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#3 Vitasoy International Holdings Ltd (345.HK)
The graph below provides a quick overview of Vitasoy’s dividend per share (DPS) track record for the last decade.
Source: Vitasoy’s Annual Reports
From the graph above, the DPS has been growing from 16.6 cents in 2010 to 41.8 cents in 2019. Vitasoy International has seen strong growth in recent years. China is the fastest-growing market for the company. There is still room for growth as penetration in China is still low. Vitasoy’s products are quite affordable and therefore is resistant to economic downturns. The company’s dividend payout ratio is over 60%, a respectable figure which still allows reinvestment into the business.