Companies Hoarding Record Amounts of Cash

As the economy continues to rebound, a number of large companies are simply sitting on cash—benefitting neither investors nor the economy at large. 

These non-financial companies aren’t circulating the money back into the economy. And they’re not paying it out in dividends either. 

For many of these institutions, their assets are around 6% cash, a higher percentage than any seen in a very long time. Theoretically, this is good news. It means companies are bringing in larger profits and cutting down on costs. In short, they’re growing.

And yet the money is just sitting there. Investors in companies such as Apple (NASDAQ: AAPL) are demanding that the money go into dividends. Right now, Apple has approximately $97.6 billion in cash on hand and has yet to pay dividends, though they recently hinted that this may change.

S&P 500 dividend ratios have been falling steadily since the ‘90s, and they’re now well below the average of 54%.

Google (NASDAQ: GOOG) is another company with a big hoard of cash. Andrew Lapthorne joked about how Google will put its cash towards a “space elevator.”

Paying out the cash in dividends, however, won’t benefit the economy as a whole. If the companies give the cash to investors, it fails to circulate it back into the economy when it could otherwise be used in company investments.

Where investors want the dividend payments, politicians would prefer the money go to jobs.

They don’t want the companies running “for cash,” where the economy as a whole receives no benefit from high profit margins. And so these companies are continuing to hoard their cash...

However a new Deloitte poll of business professionals revealed that companies are likely to pursue acquisitions, increase capital budgets, repurchase shares or issue one-time dividend payments in 2012.

"The good news is that cash balances have risen to historic levels, balance sheets are strong and companies have options," according to Justin Silber of Deloitte.  "The bad news is that literally trillions of dollars in corporate cash reserves aren't earning much - if any - return as interest rates remain at historic lows. In the meantime, investors want immediate cash return while looking for boards to defend against market volatility."

"We keep hearing from companies that they're struggling to develop a shared framework and level playing field through which multiple teams can work together to determine the best use for cash reserves in the new year," added Silber. 

"Getting your strategic house in order for cash reserve deployment should be the top resolution for corporate leadership teams in 2012."