As we’ve noted on many occasions over the past few years, investors have shown a clear preference for companies that issue steadily rising dividends and super-sized share buyback plans. Such stocks not only produce solid income streams, but also tend to show above-average growth in earnings per share, thanks to steadily falling share counts.

Of course, in StreetAuthority’s Total Yield newsletter, we’ve been clearly focused on this theme. (We define Total Yield as the net dollar value of dividend payments and share buybacks, divided by a company’s market value.) 

#-ad_banner-#The newsletter has reaped big gains since it began in 2014. Southwest Airlines Co. (NYSE: LUV) is up 114% in 15 months; Anthem, Inc. (NYSE: ANTM) is up 29% in seven months; and Flextronics International Ltd. (Nasdaq: FLEX) is up 15% in just five months.

Looking for a way to augment your gains using this approach? Keep a watchful eye for companies that have not yet embraced a Total Yield strategy, but likely soon will.

The key is to spot companies that already have robust free cash flow yields. As we’ve seen in recent years, companies with strong free cash flow have focused on dividends and buybacks, rather than the traditional path of acquisitions and capital spending.

Of course not every company with robust free cash flow is a good candidate for big buybacks and growing dividends. Some of them are only temporarily throwing off lots of cash, but may not be able to do so for much longer.

Let’s take Cash America International, Inc. (NYSE: CSH) and World Acceptance Corp. (Nasdaq: WRLD) as examples. When I ran screen for companies with very high free cash flow (in relation to their market value) these two controversial consumer loan firms were near the top.

Both firms have generated phenomenal returns by charging high interest rates on short-term consumer loans. Regulators are now examining these firms’ business practices and will likely mandate changes to their business model that will force free cash flow much lower.

Yet several stocks hold great appeal when using the free cash flow yield methodology. Here are my two current favorites.

Reinsurance Group of America, Inc. (NYSE: RGA)
This company acts as an insurer to other insurance companies. The front line insurance companies know that they can experience deep financial distress if we have a major hurricane or tornado season. That’s why they hedge that risk through reinsurance.

Business is good these days for RGA. A relatively calm environment for claims from clients enabled free cash flow to exceed $2 billion for the first time in its history in 2014.  (The four-year average is $1.7 billion.)

The strong FCF has helped to support a fast-growing dividend that now yields 1.4%. The company has also been buying back shares at a modest pace. Shares outstanding shrunk by 3.4% in 2014. Simply put, the Total Yield of 4.8% isn’t all that impressive.

But you can look for RGA to step up its game in coming quarters. On a recent conference call, management said that “excess capital” rose from $600 million in the third quarter to $1.2 billion at the end of the year. Considering that RGA’s total market value is just $6.4 billion, its Total Yield could spike into the teens the next time management discusses dividends and buybacks.

On the topic of insurers, several other ones support very high free cash flow yields including: Genworth Financial, Inc. (NYSE: GNW), Prudential Financial, Inc. (NYSE: PRU) and Enova International, Inc. (NYSA: ENVA).

Molina Healthcare, Inc. (NYSE: MOH)
My colleague Tim Begany recently wrote a compelling profile of this healthcare insurer, which has seen a big spike in new clients, thanks to the Affordable Health Care Act. What Tim didn’t note is that Molina has become a free cash flow machine. It generated $945 million in free cash flow last year, which is more than all prior years — combined.

Thus far, Molina doesn’t offer a dividend, nor has it bought back any shares. Yet the $945 million in free cash flow represents 30% of its $3.2 billion market value. Molina currently has around $2.2 billion in net cash, which is more than enough to fund operations. All of that excess free cash flow is capable is supporting a very high Total Yield — when management decides the time is right. 

Risks To Consider: The biggest concern about buybacks and dividends is that they draw funding investments in the core business. That doesn’t appear to be a problem for Molina Healthcare and Reinsurance Group of America, as they don’t operate capital-intensive businesses. But you should always think about this topic when analyzing companies with especially strong growth in dividends and buybacks.

Action To Take –> Of the 1,500 companies in the S&P 400, 500 and 600, only 79 of them have free cash flow yields in excess of 10%. You can read about some of them in our Total Yield newsletter. Buybacks and dividends have become important determinants in share price gains, and these are precisely the kinds of companies that are capable of becoming next year’s top gainers.

Total Yield stocks, like RGA, have proven to beat the market — even during the 2008 financial crisis and the dot-com bubble — and serve as reliable income investments. To learn more about Total Yield investing, click here.