Looking for something to supercharge your Free Cash Flow Yield strategy? The answer is Momentum. By combining these two powerful factors, you can capture both undervalued stocks and those with strong price trends—leading to significantly higher returns.
This article explains how Free Cash Flow Yield signals financial strength and why Momentum helps you ride winning stocks higher. You will see proof that combining these factors can improve returns by over 500% and learn a simple way to use this.
Estimated reading time: 5 minutes
Looking for a way to improve the return of your Free Cash Flow Yield investment strategy? Pairing it with Momentum is the answer.
This simple combo can help you capture both value and growth, giving your investments a boost. Here’s how it works and why it’s worth considering.
What is Free Cash Flow Yield?
Free Cash Flow (FCF) Yield shows you how much cash a company has left after covering all expenses and investments.
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Why It Matters: High FCF Yield companies are often undervalued and financially stable.
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Benefit to You: These companies can reinvest, pay dividends, or buy back shares, all of which can lift their stock price.
Adding Momentum for Growth Potential
Momentum tracks if a stock’s price is on the rise over time.
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Why It Matters: Momentum means more buyers are interested, and prices tend to keep moving up.
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Benefit to You: Investing in stocks with both strong FCF Yield and upward price momentum can capture both solid fundamentals and growth.
Click here to start finding your own high FCF Yield + Momentum ideas NOW!
The Power of Combining Free Cash Flow Yield + Momentum
Studies show that combining FCF Yield with Momentum can increase returns by as much as 500% compared to using each alone.
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Real Impact: By blending these two, you’re not just picking financially healthy companies; you’re choosing ones that have a strong chance of attracting more buyers, pushing prices even higher.
Here is the proof
We tested Free Cash Flow Yield with 13 other ratios and indicators over the 12 year period from June 1999 to June 2011 to see if that could increase returns.
And it did, a lot, as you can see in the following table:
Source: Quantitative Value Investing in Europe: What works for achieving alpha
Look at column Q1
Look at the returns in column Q1, it shows the returns generated by first selecting the 20% highest free cash flow yield companies combined with the ratios in the column called Factor 2.
Best combination +755% was Momentum (506.3% improvement)
As you can see the best way to increase the 12 year return to +755.0% was to combine free cash flow yield with Price Index 12 months (12 months momentum).
Price index 12 months is calculated as the current share price / share price 12 months ago.
This means if you invested only in the 20% of high free cash flow yield companies that also had the top 20% 12 months price index you could have increased your return by 506.3% (755.0% - 248.7%) compared to if you only invested in companies with the highest free cash flow yield.
That is a huge improvement I am sure you will agree!
Click here to start finding your own high FCF Yield + Momentum ideas NOW!
How to Use This Strategy
You can easily screen for companies with both high FCF Yield and Momentum.
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Find High Free Cash Flow Yield: Start with companies in the top 10-20% for FCF Yield.
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Check for Strong Momentum: Look for stocks with a steady price increase over the last 6–12 months.
Tip: The Quant Investing Screener makes this easy, letting you filter for both metrics at once.
This is how you implement it in the screener:
Use It in Your Portfolio
Start using this strategy with a portion of your investments:
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Start small and track how it performs.
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Compare with your other investments to see if this mix fits your style.
Combining Free Cash Flow Yield with Momentum could help your portfolio capture stability and growth—a winning combination in any market.
Click here to start finding your own high FCF Yield + Momentum ideas NOW!
FREQUENTLY ASKED QUESTIONS
1. Why should I care about Free Cash Flow Yield?
Free Cash Flow Yield shows how much cash a company generates relative to all the capital used in the business (excluding excess cash). High FCF Yield means the company is financially strong and may be undervalued. These companies can reinvest in growth, buy back shares, or pay dividends—actions that often lead to higher stock prices.
2. Momentum investing feels like chasing trends. Does it really work?
Yes, momentum investing works because stocks that are already rising tend to keep rising. This happens because investors and institutions pile in as a stock gains strength. Combining momentum with FCF Yield ensures you are investing in fundamentally strong companies that also have market support.
3. What proof is there that FCF Yield and Momentum work together?
A study tested Free Cash Flow Yield with 13 other indicators over 12 years. The best-performing combo was FCF Yield + 12-month Momentum, generating a +755% return—a 506% improvement over using FCF Yield alone. This means momentum supercharged returns from already strong companies.
4. How do I find stocks with both high Free Cash Flow Yield and strong Momentum?
Use a stock screener to filter:
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Top 20% of companies by FCF Yield (strong financials).
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Top 20% by 12-month Price Index (rising stock prices).
This will highlight companies that are both cheap and in demand.
5. What if a stock has high FCF Yield but weak Momentum? Should I still invest?
Be cautious. High FCF Yield without momentum could mean the stock is undervalued for a reason—maybe poor growth or bad market sentiment. Adding momentum helps avoid “value traps” (cheap stocks that stay cheap).
6. How should I use this strategy in my portfolio?
Start small. Test it with a portion of your portfolio, compare returns, and gradually scale up. This strategy works well in diversified, rules-based investing rather than picking single stocks.
7. Can I automate this strategy instead of picking stocks manually?
Yes! A stock screener (like the Quant Investing Screener) allows you to set up filters and instantly find stocks that meet these criteria. This removes guesswork and emotion, helping you stick to a disciplined, proven system.
Click here to start finding your own high FCF Yield + Momentum ideas NOW!
