For the past few years, a tepid economic recovery has caused America's biggest companies to hoard a growing stack of cash. It's a thorny issue. Not just to the millions of jobless who wonder why corporate America can't just use its plentiful cash reserves to hire more workers, but also to shareholders asking for higher returns on their investments.
But 2012 could turn out differently. Companies have slowly come around, with shareholders likely to see higher payouts this year. Even if firms only paid out a modest 10% of their liquid assets, it could raise annual disposable income by nearly 2%, according to a new report by Capital Economics. With more money in shareholders' pockets, even if they naturally save a bulk of it, such a payout could still raise annual consumption by 1%.
If you believe the estimates, then it's certainly a reminder that companies should really step up.
Last month, Apple (AAPL) announced it would pay its first dividend in 17 years, leading some to speculate if others in the tech world might think differently about their cash reserves. Though Cisco (CSCO), Oracle (ORCL) and Microsoft (MSFT) pay dividends, the companies are still among the nation's biggest cash hoarders.
Apple, with about $97 billion in cash amassed from huge demands for iPhones and iPads, ranks at the top of the list of U.S. corporations with lofty reserves, according to Capital Economics. Microsoft follows with approximately $52 billion and Cisco with about $47 billion. Google (GOOG) ranks fourth, with $45 billion. And now that Apple is giving its shareholders a payout, that makes Google the only tech company with a market value exceeding $100 billion that doesn't offer a dividend.
Since the latest recession, executives uncertain about the economy have held onto their money. Cash levels at the end of 2011 rose to $672 billion from $42 billion at the end of the recession in mid-2009. If you include short-term investments, liquid assets nearly doubled to $2.2 trillion during the same period.
Indeed, that's a lot of cash to go around. Companies obviously aren't going to pay out all their cash reserves. If they did return that $2.2 trillion to shareholders, personal incomes would rise by nearly 20%.
It's true raising dividends might not work for every company, but it's hard to argue that it would exactly hurt executives. Even with Apple's plans to dole out dividends and provide stock buybacks, the move isn't expected to put a dent in Apple's coffers. The plan is expected to cost the company more than $10 billion a year over the next three years, while the company attracts a sizable sum of cash – about $1 billion a week in the last holiday season alone.
