This healthy freecashflow has enabled the companyto pay down the debt from the Washington Group acquisition, leaving it with a strong balance sheet and a net cash position.
But if a company keeps growing freecashflow and uses part of the cashto keep shrinking the float, why would not such a company outperform an equivalent dividend payer?
To explain why, imagine you own 1% of a company that has generated enough freecashflow so that it is deciding whether to pay a 6% dividend or shrink the float 6%.
As I noted in a post yesterday, Legg Mason fund manager Bill Miller has suggested that the company can keep the current cash, but pay out all future freecashflowto holders.
As such, the focus needs to be on streamlining the process of developing and producing vehicles in a way that allows the companyto keep a lid on the working capital requirements and free up additional cashflow.