Apple Inc's quarterly results this week showed the iPhone maker reduced its cash holdings for the first time since 2006, cranked up a share buyback program by $30 billion and raised its dividend. General Electric Co is considering tapping its $57-billion in overseas cash to acquire France's Alstom SA, according to a person familiar with the situation.
The steps are encouraging investors who have pushed companies to reward them with higher payouts, as well as economists who consider the piles of cash a missed opportunity to start long-awaited spending on tools, facilities or new businesses to help accelerate growth and create jobs. Signs that the US is rebounding from a winter slowdown and Europe is recovering from its recession are also beginning to encourage companies to pursue acquisitions.
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"Corporations are flush with cash and are beginning to pick up M&A activity as well as share buybacks and dividend increases," said Eric Teal, who helps oversee $3.5 billion as chief investment officer of First Citizens BancShares Inc. in Raleigh, North Carolina. "These activities will continue."
The cash pile reached $2.02 trillion in the latest quarterly filings of 2,300 non-financial companies in the Russell 3000 Index, according to the data compiled by Bloomberg as on April 21. The total rose about 13 per cent from a year earlier in each of the two latest quarters, the fastest six-month gain since mid-2011. For comparison, Russia's annual gross domestic product was about $2.01 trillion last year.
Some investors including Frederic Dickson of D.A. Davidson & Co blame the practice of squirrelling away money for sluggish economic growth and an unemployment rate stuck above six per cent since 2008. Capital spending on structures, equipment and intellectual property by all US companies in 2013 increased 3.9 per cent, the slowest pace in three years, to $2.05 trillion, according to US Commerce Department data.
"The failure to invest in capital growth is one reason why jobs growth has been below par during the current cycle," Dickson said. The recent activity is encouraging but may not be enough, he said.
"Companies at this point are probably a little more inclined to give more money back to shareholders than they have in the past," said Dickson, who as chief investment strategist helps manage $44.5 billion at Lake Oswego, Oregon-based Davidson. Yet they "still remain reluctant to put the accelerator to the floor in terms of capital spending," Dickson said.
The US economy may grow 2.7 per cent this year, according to a Bloomberg survey of economists. While ahead of last year's 1.9 per cent expansion, it still trails the average 2.9 per cent in the five years before the most recent recession. The US jobless rate held steady at 6.7 per cent in March.
Signs of a recovery have emerged after a harsh winter. The US index of leading economic indicators, a gauge of the next three to six months, rose this week on improving job market data and a jump in March factory production.
Economists also have been flagging signs that companies may be loosening their purse strings. Investment in non-residential projects and equipment will rise by about 7 per cent this year after a 3.1 per cent advance in 2013, according to forecasters at Goldman Sachs Group Inc. UBS Investment Bank sees equipment spending increasing 7.5 per cent, followed by a 10 percent gain in 2015.
With $150.6 billion in cash and marketable securities, Apple has a bigger hoard than any non-financial company in the US. The Cupertino, California-based maker of iPhones and iPads has drawn criticism from activist investors Carl Icahn and David Einhorn, who want a bigger return to shareholders.
Apple said this week that it will increase its share repurchase authorization by $30 billion, to $90 billion, boost its quarterly dividend by eight per cent and split its stock seven-for-one.
"We think very deliberately about how much and in which way to return cash to our shareholders," Chief Executive Officer Tim Cook told analysts on April 23. The company's latest cash total, contained in its quarterly earnings report two days ago, is down from about $159 billion at the end of calender 2013 and marks the first decline since the first quarter of 2006. The company entered 2014 with plans to spend a record $10.5 billion on assembly robots, milling machines and other tools and also just opened a new parts plant in Arizona to employ about 700 workers.
Offshore profits have contributed to the increase in corporate cash balances. A March 31 Moody's Investors Service report estimated that as much as 58 per cent of corporate cash is held overseas, where multinational companies can take advantage of favourable tax conditions.