Dividends And Buybacks Surge Higher

by Eric Fox

Although the "Chicken Little" attitude on the economy may be paramount in the minds of investors, corporate treasuries are brimming with record amounts of cash, and should be able to withstand a downturn much better than the last one. Many companies have used some of this cash to increase both dividends and buybacks.

The Data
The Federal Reserve reported that non-financial corporations held $1.84 trillion in cash and liquid assets as of March 30, 2010. This was up 26% year over year and was the largest increase ever recorded, according to the Wall Street Journal. Although data for the second quarter is not yet available, this amount almost certainly increased as companies continue to keep costs down and have not yet initiated major hiring or expansion plans.

Dividends
Dividends by companies in the S&P 500 were up by 2.4% over the same quarter in 2009. June 2010 dividend payments were up an even stronger 5.7% over June 2009. During the quarter ending June 30, 2010, only 34 companies reduced its dividend, while 335 S&P 500 companies increased dividend payments.

Stock Buybacks
Stock buybacks by companies in the S&P 500 totaled $55 billion in the quarter ending March 31, 2010. This was up sequentially from the $48 billion in the last quarter of 2009, and year over year from the $31 billion in the first quarter of 2009.

Data has not yet been released for the second quarter of 2010, but several major companies also announced buybacks during the quarter. Yahoo (Nasdaq:YHOO) was the latest company to find its own stock attractive for purchase, and will spend up to $3 billion to buy back its stock from "time to time" over the next three years.

The Bottom Line
Corporate America is hoarding cash as it continues to worry about a second economic contraction. Many companies are using some of this cash to increase dividends and stock buybacks rather than resume hiring and expand capacity.

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