Deducting stock pay cuts the median free-cash-flow yield from 4.4% to 3.8%; in Comm Services stock pay equals 37% of free cash flow
Trailing-four-quarter free cash flow (operating cash flow minus capital expenditure) over market cap, before and after stock-based compensation, median by GICS sector; 614 reader-safe non-financial names, latest reported quarter per name (June 2026 for 85% of names), market cap at 31 Jul 2026.
Free-cash-flow yield before and after stock pay
Median by sector, % of market cap; ordered by the after-SBC yield
Dashed line = book median after SBC (3.8%). Number of names in brackets. The two medians are taken separately, so in small sectors the distance between the dots can exceed the typical name's SBC yield.
What it shows · fact
Across 614 non-financial names the median FCF yield is 4.4% as reported and 3.8% after deducting stock-based compensation; in aggregate SBC equals 16% of free cash flow. 61 names have negative FCF after SBC, against 56 before.
Stock pay is largest relative to cash flow in Comm Services (37% of aggregate FCF) and smallest in Energy (3%). Utilities has negative aggregate free cash flow (capital spending exceeds operating cash flow), so the yield is negative before stock pay.
Why it matters · inference
Stock pay is a real cost: it is paid in shares instead of cash, so owners bear it through dilution or through the cash spent on buybacks to offset it. A free-cash-flow yield that ignores it overstates what owners earn.
Because the cost is concentrated in Comm Services and Discretionary, cross-sector comparisons of reported FCF yields flatter those sectors most.
What would change this read
Falling SBC relative to cash flow (as companies mature) would narrow the gap; after a share-price fall, grants cost fewer dollars but more shares, so watch share counts as well as SBC dollars.
A switch from stock to cash pay would move the cost into operating cash flow and leave the after-SBC yield roughly unchanged.
Method
- FCF = trailing-four-quarter operating cash flow minus capital expenditure (Alpha Vantage reports capex as a positive outflow; checked on several names). SBC = trailing-four-quarter stock-based compensation from the cash-flow statement.
- Where quarterly SBC is incomplete, the latest annual SBC is used if that fiscal year ended within 15 months (31 names).
- Market cap = factor-score market cap at 2026-07-31, or close x latest reported shares where the factor score is missing. Financials excluded: bank and insurer operating cash flow includes lending and deposit flows, so FCF is not meaningful.
- Guard against unit errors: names with an absolute FCF yield above 50%, an SBC yield above 25% or negative SBC are dropped.
Sources
- MCH research warehouse, quarterly statements (Alpha Vantage, as restated).
- MCH research warehouse, monthly factor scores (trailing earnings yield, market cap).
Universe
| Names in the published feed | 886 |
| Excluded: held, suspended, withdrawn, deferred, deal-pending or pending review | 53 |
| Reader-safe universe | 833 |
| Excluded: Financials (FCF not meaningful) | 133 |
| Dropped: incomplete four-quarter cash flow or no market cap | 4 |
| Dropped: no stock-based compensation reported | 69 |
| Dropped: absurd values (possible unit errors) | 13 |
| Used in this exhibit | 614 |
Names whose rating is held, suspended, withdrawn, deferred or under a pending deal are excluded from every exhibit, so no held output appears here.
General and impersonal investment research. Not personal financial advice. Forecasts, valuations and model outputs are estimates and may be wrong. See Investment Disclaimer.
MCH Analysis is a general investment-research publication of MCH Advisory (Pty) Ltd. It is not personal financial advice and does not take your circumstances into account. MCH is not a licensed financial services provider or a registered investment adviser. Past performance, whether actual or simulated, does not predict future results. Subscriber Agreement | Privacy and Cookie Notice | Research Governance Policies