Corporate Cash Piles

[Kerim]

Here's an interesting article about the record amount of cash that companies are sitting on.

The argument is rather than fueling investment, it is being returned to shareholders in the form of buybacks and dividends (yay!). It also has this interesting bit:

Quote:Dividends are also booming. At the end of January, some 420 out of the 500 companies that comprise the benchmark S&P 500 stock index paid dividends. That’s the most since 1998. And S&P companies say they plan to pay out roughly $330 billion in dividends this year—a new record high.

If that trend continues, an S&P 500 index fund would become a dividend fund, of sorts.

[Dividend Watcher]

Interesting article. What scares me about so much cash on the books is management that's more concerned with empire building. First they'll buy (and usually screw it up) and then they'll use the excuse that because of the size of the company they deserve more pay. Microsoft, for the longest time, was famous for buying high and then selling it low a few years later.

Amazon is a good example to me. Bezos is brilliant and built a great business but I don't think his intention is ever to return money to his investors. Mr. Market is doing that for him but you can't depend on Mr. Market and market timing. I can do that in Vegas or Atlantic City and it's much flashier.

Interesting article and that's why we're here and at SA for, to winnow out the ones that want to make sure we get a good return.

[Kerim]

Yeah, I agree. Makes me think of AAPL. You can bash them all you want about the cash horde they've built up, but I respect the discipline they've shown with it. It would have been very easy for them to go on a (mostly) useless buying spree.

[fiveoh]

As a shareholder, I also don't want AAPL to have to pay taxes on that huge overseas cash chunk. I think a lot of the big companies are in the same position.

[hendi_alex]

Over the past few years, cash on the books and low debt have been two of my most heavily weighted metrics to consider before buying any tech company. I find high cash coupled with low debt to be very comforting when considering dividend safety, ability to raise the dividend, and safety buffer against short term negative hits that a company may take.

[TomK]

(02-16-2014, 08:24 AM)hendi_alex Wrote: Over the past few years, cash on the books and low debt have been two of my most heavily weighted metrics to consider before buying any tech company. I find high cash coupled with low debt to be very comforting when considering dividend safety, ability to raise the dividend, and safety buffer against short term negative hits that a company may take.

I agree with this completely -- especially the part I bolded. Companies have good spells and bad spells that can last for several quarters or even years. Part of the ups and downs and ebbs and flows of being in the market. A big cash pile and low debt can help a company weather the lean years and smooth out those bumps.