Key insights
- An analysis of Dividend Aristocrats' free cash flow correlation to nominal GDP (NGDP) reveals that many dividends are structural rather than economically driven. AXP shows a strong positive correlation, while CB is countercyclical. KO's revenue correlates with NGDP, but its FCF does not. The analysis suggests AXP is a standout performer based on this metric, while KO's current FCF yield is less attractive.
I got tired of P/E ratios so I built my own thing. 15 years of SEC XBRL data, True FCF (OCF minus CapEx minus SBC) for every Dividend Aristocrat, correlated against NGDP.
The finding that bothered me: 59% of Dividend Aristocrats have negative FCF/NGDP correlation. Their dividends aren't economic — they're structural. Clorox, Lowe's, JnJ — cash flows move independently of whether the economy grows or shrinks. That's either a moat or a warning depending on what you think comes next.
The three names that stood out:
AXP — 83% FCF/NGDP, 7% True FCF yield. Every Amex transaction is a clip on nominal GDP. Buffett's been sitting on this for decades. The screen explains why quantitatively.
CB — 10.2% True FCF yield, negative NGDP correlation. Countercyclical by design. Insurance underwriting profits when everyone else is bleeding.
KO — 78% revenue/NGDP, 18% FCF/NGDP. Revenue surfs the economy. Cash doesn't follow cleanly. Buffett bought it in 1988 when the True FCF yield was extraordinary. At 1.5% today the screen wouldn't touch it fresh. Neither would he.
Also ran 125 years of stocks vs gold vs the economy indexed to 100. The order surprised people in the comments last time I posted similar work — gold loses to NGDP badly. Stocks win on dividends alone.
Checked the math. Happy to share the truncated .csv. Link way down here: https://cavemanscreener.substack.com/p/surfin-ngdp-owning-the-necessaries