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Be Wary of Special Dividends: S&P Risk Manager

Monday, 29 Nov 2010 | 12:12 PM ET

Firms are sitting on more money in their corporate bank accounts than ever before. What will they do with all the extra cash? Michael Thompson, managing director of valuation and risk strategies at Standard & Poor’s, shared his insights.

Where Cash Hoard is Going
More than a trillion dollars is sitting in corporate coffers, but that won't last for long, says Michael Thompson, Standard & Poor's.

“We’ve seen that special dividend announcements* have almost doubled the same period last year,” Thompson told CNBC.

“But that’s not necessarily a positive sign, because it’s saying that [companies] may not have as good a use for the cash as [investors] might, or they can’t invest it and get the kind of returns that investors expect,” he explained.

A lot of the money on the sidelines will also eventually spark things such as deals, longer-horizon dividends and stock buybacks, added Thompson.

* when a company gives a one-time dividend.

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Scorecard—What He Said:

  • Thompson's Previous Appearance on CNBC (Oct. 7, 2010)

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More Market Analysis:

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CNBC Data Pages:

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CNBC Slideshows:

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Monday's Top Dow Laggards (as of this writing):

Hewlett Packard

Caterpillar

Boeing

Chevron

United Technologies

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Disclosures:

No immediate information was available for Thompson or his firm.

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Disclaimer

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