Corporations are hoarding cash: despite dividends and buybacks, cash is likely to hit another record high.
Cash set a record in the first quarter of 2013 on an absolute basis: $1.093 trillion in the S&P 500. It has set a record for 18 of the last 20 quarters.
With 47 percent of the S&P 500 reporting,we are once again on track for record cash levels.
What's going on? The short answer is that companies are not spending as much...they have record earnings, but they are holding on to a lot of the money. Consider the places where they would spend their money:
- Capital expenditures have not risen much;
- M&A activity has been modest at best;
- Buybacks have increased, but they are nowhere near levels before the financial crisis. For example, actual buybacks were $100 billion for the first quarter of 2013. If you go back to Q4 2007, there was $142 billion in buybacks, Q3 2007 there was $172 billion;
- Dividends have gone up slightly, but they have gone down as a percentage of earnings. For the S&P 500, the payout ratio (the dollar amount companies are paying out as a percentage of earnings) is currently 36 percent; in Q3 2007 it was 45.8 percent.