Watch Out, Rising Capex Could Turn Today’s Cash Cows Into Dogs

5 hours ago 3

Omor Ibne Ehsan

Mon, June 8, 2026 astatine 10:57 AM CDT 5 min read

Quick Read

COWZ has returned 63% implicit 5 years, but surging capex successful Energy and pharma present threatens to rotate retired its existent apical holdings.
SCHD offers akin quality-value vulnerability astatine little outgo for investors who favour dividend durability implicit COWZ's free-cash-flow momentum screen.
ConocoPhillips doubled yearly capex to $12 cardinal betwixt 2021 and 2024, collapsing escaped currency travel from $18 cardinal to conscionable $8 billion.
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Pacer US Cash Cows 100 ETF (NYSEARCA:COWZ) owns the 100 Russell 1000 names that make the astir escaped currency travel comparative to marketplace value. That transportation has worked. COWZ trades astir $64 and is up 17% implicit the past year. But the motor powering the money depends connected 1 adaptable holding up crossed cyclical sectors, and that adaptable is starting to wobble.

What "dogs" really means present

In stock-picker shorthand, dogs are laggards. The archetypal Dogs of the Dow strategy bought the 10 highest-yielding Dow names each January connected the mentation that a abdominous dividend output signaled a beaten-down terms that would mean-revert. COWZ inverts the logic.

Instead of hunting inexpensive yield, it hunts inexpensive currency generation, screening the Russell 1000 for the highest trailing free-cash-flow yields and capping each sanction adjacent 2% astatine quarterly rebalances. The disbursal ratio is 0.49%, which is steep for a rules-based screen, but the rules person produced existent numbers: 63% implicit 5 years.

The surface is the strategy

Free currency travel is operating currency travel minus capex. Raise capex, and adjacent a steadfast operating concern stops qualifying. When Energy and Industrials, 2 sectors that historically predominate the fund's roster, commencement spending much to support accumulation oregon physique capacity, the surface softly demotes them astatine the adjacent rebalance. The existent apical holding are a premix of spot companies, mixed with industrials and well-established currency cows similar Altria (NYSE:MO).

Another holding, ConocoPhillips (NYSE:COP), shows however this tin spell sideways. Annual capex ran $5.3 cardinal successful 2021, past climbed to $11.2 cardinal successful 2023 and $12.1 cardinal successful 2024. Operating currency travel stayed astir flat, truthful implied escaped currency travel collapsed from $18.2 cardinal successful 2022 to astir $8 cardinal successful 2023 and 2024.

The buyback programme kept moving astatine $5 cardinal to $9 cardinal annually done the squeeze, which is however a currency cattle starts to look indistinguishable from a canine connected a free-cash-flow-yield screen.

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