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TheStreet Open House

You're Being Stiffed by Companies Hoarding Billions of Dollars for no Reason

BOSTON ( TheStreet) -- U.S. companies raised dividend payouts by $9.6 billion in the third quarter to keep hungry shareholders happy and attract those earning almost nothing on bonds.

That's chump change compared to dividend payouts of the past. And it comes at a time when the nation's companies are sitting on more cash than ever.

Dividend payout rates have historically averaged 52% of earnings per share, but are now running near all-time lows at under 30%, according to S&P Indices. Companies have "considerable room to increase payments," S&P Indices says. But they won't.

And it's not as if U.S. companies need more cash. At the end of the second quarter, they held a record $2.1 trillion, up 4.5% from the first quarter and almost 50% from the end of 2008, according to the Federal Reserve.

S&P 500 Index companies, excluding financial firms and utilities, held $976 billion in cash on June 30, the 11th consecutive quarterly record for cash balances. That amount represents 72 weeks of net income.

Financial giant JPMorgan Chase (JPM) has the biggest cash holdings among S&P 500 companies, with $414 billion as of June 30. It has a projected dividend yield of 3.24%.

Yet, technology companies are among the largest cash hoarders. Microsoft (MSFT), the world's No. 1 software maker, is the most egregious, with $51.4 billion, up 5.4%, or $2.7 billion, from the first quarter. It has a projected dividend yield of 3.09%.

Dominant computer-network firm Cisco Systems (CSCO) held $44.6 billion, and has only a 1.49% projected dividend yield, close to the benchmark Treasury yield.

Google (GOOG), the Internet search engine company, held $39 billion in cash, up 2.4% in the second quarter, yet pays no dividend. The same goes for iPad and iPhone maker Apple (AAPL), which ought to be rebranded "iProfit." The company had $28.4 billion on June 30.

Those balances have only increased since then, as S&P 500 companies are expected to report higher third-quarter revenue and earnings, which means they're continuing to generate huge cash flows. Hiring is sluggish, as the unemployment has been stuck at or above 9% for all but two months in the past two years.

Yet, the share of dividend-paying public companies rose to 40% of 7,000 tracked by S&P Indices in the third quarter, up only slightly from 39.3% in the first and second quarters.

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