7 high-yield free-cash-flow kings

The stocks selected by the screen last year performed very well on the whole, generating an average total return of 17.7 per cent (see table), which was well ahead of the 12.9 per cent from the FTSE All-Share. Perhaps most interestingly, though, is that the five stocks from last year's screen that were using their strong cash positions to support above-average dividend yields boasted a sumptuous average total return of 24.2 per cent.

Cash comforters, class of 2011

Source: Datastream

We've rerun the screen with the added criteria that stocks must be yielding above the 'median' average of 3.29 per cent for the 1,500 companies tested. After all, one of the key attractions for shareholders of a company throwing off cash is the prospect that a decent slug of it will be handed over. The other criteria used to identify our seven cash comforters listed below are:

■ Unlevelled free cash flow (cash after all unavoidable payments except interest payments) higher than it was five years ago and rising in at least three of the last five years.

■ Cash from operations above operating profit for each of the last three years.

■ Net debt less than twice cash profits.

■ As an indication that the business is of decent quality, we've also asked for an average return on equity over the last three years of 10 per cent or more.

Asian Citrus

Source: S&P Capital IQ

Casting an eye over Chinese citrus fruit grower and processor Asian Citrus, the shares' fundamentals look too good to be true. This is not surprising as trust is the key issue and accounts for the rock-bottom valuation. The company has been subject to substantial speculation about the veracity of its reported numbers and, despite its concerted efforts, the market appears to remain scared of backing the story. The company's plantations recently avoided being hit by a typhoon in the region and management assured the market that it is covered in the case of such an event.

Last IC view: Buy, 37p, 27 Feb 2012

Marks & Spencer

Retail stalwart Marks & Spencer has struggled in 2012 and not only due to the lousy conditions on the high street. The company's trading has been hit by stocking mistakes and merchandising problems, leaving it with much to prove. While the company has passed our balance sheet, test a large pension obligation means it is perhaps not as robust as it otherwise seems; nevertheless, the shares have benefited recently from bid speculation. The share price looks low, but the group needs to show it is in recovery mode if it is to reward shareholders.

Last IC view: Hold, 319p, 11 Jul 2012

Alternative Networks

Despite the tough environment for corporate spending, Alternative Network, which sells telecoms and internet services and products to businesses, has performed relatively well recently. Good levels of customer retention have helped growth in the first half even though sales based on capital expenditure suffered and regulatory changes knocked the results. It has recently said that despite headwinds it continues to increase its market share across most of its product sets and that cash generation remains strong.

Last IC view: Hold, 258p, 12 Jun 2012

ComputaCenter

IT services group ComputaCenter is well known for its strong cash flows and frequently makes appearances in our screens that test this performance measure. However, 2012 has not been plain sailing for the group and management had to warn that performance would be dented by higher than expected start-up costs midway through the year. Nevertheless, first-half results looked reasonably solid even if they did not answer all the market's question. Fears also persist about the general state of the economy in the UK, which accounts for three-quarters of the group's business, and western Europe.

Last IC view: Buy, 376p, 31 Aug

Inmarsat

Bouyant results from Inmarsat's maritime division provided a welcome half-year boost for shareholders. Improved take-up, usage and pricing of the group's services all contributed to a strong first-half performance by the satellite telephony business. Shareholders also stand to benefit from the launch of the group's Global Express superfast broadband service in 2014. In the meantime, the strong cash flow and handsome dividend provide an allure of their own.

Last IC view: Buy, 528p, 3 Aug 2012

Pearson

Pearson, which owns Investors Chronicle, has started the year in line with expectations, reporting solid growth in its education business and its financial publishing arm, FT Group, although sales at publisher Penguin slipped due to the phasing of the publishing schedule. There was also strong growth in the group's digital business. Pearson also qualified in last year's screen.

Last IC view: None

RPC

Rigid plastic group RPC has not been immune to general economic weakness but strategic change at the group has helped to underpin performance. The company has been investing in higher-margin products, such as coffee capsules and pharmaceutical packaging, while engineering an exit from less desirable activities such as cup and car parts manufacture. Volatile input costs are an issue, but RPC has proved adept at recovering any shortfalls in the past. Euro exposure is also a concern for the market but the company looks like it is moving in a promising direction strategically.

Last IC view: Buy, 366p, 13 Jun 2012