NEW YORK (TheStreet) -- Activist investors and institutional shareholders are increasingly forcing publicly held companies to return more cash to shareholders, and that's good for the economy.
According an S&P Capital IQ study, companies in the Standard & Poor's 500 Index returned about 36% of operating cash flow to investors through dividends and share repurchases in 2013, up from 18% a decade earlier.
Critics contend that's bad for innovation and growth, because sending money back to shareholders reduces investments in equipment, technology and research and development, and lowers corporate spending and aggregate demand for goods and services. Such thinking gets things backward and is counter to the facts.
Overall, cash returned to shareholders is much lower today, even with the recent surge instigated by activist campaigns, than in decades past when the economy enjoyed much more robust growth.
Yale University Professor Robert Shiller studied a diverse group of U.S. companies and found from 1900 to 1980, those paid out an average of 61% of profits in dividends-that figure dwarfs combined dividends paid and share buybacks combined today by any measure.
U.S. corporations are sitting on more than $1 trillion in idle cash for other reasons.
The strong dollar, changes in the economy creating mismatches between workers skills and the needs of business, and well-intentioned government programs that aid the jobless but also create disincentives to seek training and employment have slowed annual gross-domestic-product growth to 1.8% since 2000 from 3.4 % the prior two decades.