Cash Yield

Cash yield measures the proportion of a company's market value that is backed by cash on hand. A stock trading at $1 billion market cap with $300 million in cash has a 30% cash yield.

High cash yield stocks attracted Benjamin Graham's attention as potential net-net candidates. When cash yield approaches or exceeds 100%, the market values the operating business at zero or negative - a potential deep-value opportunity.

Cash yield also serves as a margin-of-safety indicator. A company with high cash yield has a natural floor on its value and financial flexibility to weather downturns, fund buybacks, or pursue acquisitions without raising capital.

Higher cash yield indicates a larger cash cushion relative to price. A cash yield above 20-30% is notable and suggests the market is not giving full credit for the cash on the balance sheet.

Investors should consider whether the cash is truly accessible. Cash trapped in foreign subsidiaries (less of an issue post-2017 tax reform), restricted cash, or cash earmarked for obligations reduces effective cash yield.

Cash yield pairs well with EV-based metrics. A company with high cash yield will show a lower EV relative to market cap, often making EV-based multiples look more attractive than equity-based ones.

Technology companies, especially those in Japan, South Korea, and parts of Europe, are known for holding large cash reserves. Cash yield is a common screen for activist investors seeking companies where management could return capital.

Banks and insurance companies hold cash as part of their business model, so high cash yield for financials does not carry the same signal as for industrial or technology companies.

Small-cap and micro-cap stocks occasionally show cash yield above 50-100%, creating net-cash situations attractive to deep-value investors.