Companies Fire Up Stocks with Heavy Dose of Dividends, Buybacks

Sunday, 10 Mar 2013 12:11 PM

By Dan Weil

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Blessed with buckets of cash, companies are paying out more dividends than ever and buying back more shares than ever.

Those rewards are making many shareholders plenty happy. And both the buybacks and the
dividends are helping the stock market rise to record highs, according to The Wall Street Journal.

Corporations, excluding financial ones, held $1.79 trillion of cash and cash equivalents in the fourth quarter of 2012, up from $1.77 trillion in the third quarter, according to the Federal Reserve.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

So it should be no surprise that companies in the Standard & Poor’s 500 index are expected to shell out $300 billion or more of dividends this year, up from $282 billion in 2012, according to S&P Dow Jones Indices.

As for buybacks, companies announced $117.8 billion of them in February, the highest monthly total in data going back to 1985, according to Birinyi Associates research firm.

"Corporations are flush with cash, and that cash sitting in the corporate coffers is earning next to nothing," Rob Leiphart, an analyst at Birinyi, tells The Journal. "Companies have to do something with it."

The companies’ activity raises the question: Are buybacks or dividends better for shareholders? Some argue it’s buybacks, because they theoretically do more to raise the share price. And that’s a non-taxable event until the shareholder sells.

But those who favor dividends say shareholders deserve a company’s excess cash and that the share price increase that is supposed to result from buybacks is often more theoretical than real.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

© 2014 Moneynews. All rights reserved.

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