I'm going to discuss a concept that’s technical but is incredibly relevant to your investments: free cash flow.

So, what exactly is free cash flow and why should you care about it? When we're looking at potential investments for your portfolio, whether that's mutual funds, ETFs, or other securities, one critical metric we examine is a company's free cash flow yield.

Let's break that down.

Free cash flow is essentially the cash a company has left after it covers its operational costs, pays its debts, and meets its tax obligations. Think of it as the company's leftover money which they can then use for actions that significantly impact their growth and stability. This includes paying and increasing dividends, funding mergers and acquisitions, buying back stock, and reducing debt—all actions that can strengthen a company and make it more attractive to investors like us.

Why is this important for you?

Well, for those of you in retirement or nearing retirement, dividends can be a crucial source of income. A company that has robust free cash flow is in a better position to grow and enhance those dividends over time, ensuring that you have a reliable income stream.

This ability to consistently generate and increase free cash flow makes a company an attractive option for inclusion in your investment portfolio. It's an indicator that they're not just surviving but potentially thriving, capable of funding their own growth and returning value to shareholders.

If you're curious to learn more about how free cash flow can affect your investment decisions, or if you have any other questions, we have some excellent resources at Clarity Wealth. We'd love to dive deeper into this topic with you and explore how understanding these financial nuances can benefit your overall investment strategy.

Here’s to making informed financial decisions that help you build and maintain wealth. Make it a great day!