At first glance, China Mobile Ltd (NYSE: CHL), Southwest Airlines Co. (NYSE: LUV) and Ameriprise Financial, Inc. (NYSE: AMP) appear to have nothing in common.

But if you dig a little deeper, then you’ll see why they are among the favorite stocks of my colleague Nathan Slaughter. Nathan is the author of StreetAuthority’s Total Yield newsletter, and he has seen each of those stocks rise more than 15% this year since he included them in his portfolio.

#-ad_banner-#Their common trait: all three companies produce prodigious amounts of free cash flow, which has enabled them to aggressively buy back shares, pay sprightly dividends, slash their debt — or some combination of all three. Add up the impact of each of those three factors and you derive a Total Yield score. Such shareholder-friendly moves can often goose a stock price.

These days, Nathan is in an enviable position. The choppy stock market has pushed the shares of a wide range of quality companies quite far from their 52-week highs. And many of them possess such robust free cash flow that they are now in a position to deliver an impressive Total Yield. Simply put, any company with a great free cash flow yield (which is free cash flow divided by market value) is a candidate for a great Total Yield.

Want to see the concept in action? Check out insurance stocks. Many of them are delivering rock-solid levels of free cash flow, and will do even better when interest rates rise and they earn higher interest income on their hefty cash balances. But their shares are now moving sideways since I profiled them a year ago. As a result, their rising free cash flow and stagnant share prices means that they now sport some of the most impressive free cash flow yields on the market.

Source: ThomsonReuters

Take a look at how Reinsurance Group of America, Inc. (NYSE: RGA) is deploying its free cash flow, which has averaged $1.6 billion over each of the past four years. It boosted its dividend by at least 25% in each of the past four years, which still yields just 1.7%. RGA has also reduced its share count by 6.3% over the past five quarters, through an ongoing buyback program.

Yet, in light of this company’s stunning free cash flow, those efforts are bound to accelerate. In fact, RGA is likely to keep buying back stock, even when the current $300 million program is expended. That’s because shares trade for just 82% of book value. And as I’ve often noted, any buyback activity when shares trade below book can give an especially powerful boost to per share book value.

It’s not just the insurers that are great candidates for Total Yield. Dozens of other stocks now sport impressive free cash flow yields, and how they convert that into a Total Yield strategy may be a key theme in this upcoming earnings season.

Regional bank and credit card issuer Capital One Financial Corp. (NYSE: COF) is clearly making good use of its free cash flow, which topped $7 billion in each of the past four years. Its dividend raised from just $0.20 a share in 2012 to a current $1.20, and looks poised to rise much higher.

When my colleague Chad Tracy looked at the bank a year ago, he noted that Capital One had just been given the green light to buy back $1 billion in stock. As a result, shares outstanding have fallen for four straight quarters, and will likely fall further in coming quarters as the bank subsequently issued an even larger $2.5 billion buyback this past spring.

Risks to Consider: The biggest concern about companies pursuing aggressive buybacks, as part of their Total Yield strategy, is that they could end up buying shares ahead of a sharp market pullback, which means they could have bought shares at a lower price down the road had they been more patient.  

Action to Take –> As we head into earnings season, you can expect to hear about more companies focus on a Total Yield strategy. After all, free cash flow remains robust, even as some stocks drift far from their 52-week highs. And some of these same companies are also likely to pursue dividend hikes and debt reductions. As my colleague Nathan Slaughter has noted, “Historically, Total Yield has outperformed all dividend-only strategies for over 3 decades, going back all the way to 1982.”

In the challenging current market, such Total Yield producers also have a strong ability to play defense. Robust free cash flow, in support of shareholder-friendly moves, can help a stock hold its ground while others take a tumble.

For more information about the Total Yield strategy — and to get a few names and ticker symbols of Nathan’s favorite stocks — click here.