When the term "hoarding" is thrown around, it usually refers to a mentally ill person whose house is packed to the gills with plastic bags, newspapers, snow globes, stuffed animals, old televisions, coffee cups and just about any other household item you can imagine. It's a bad thing.
A company that hoards, on the other hand, is a beautiful thing.
That's because their hoarding results in massive pools of cash on their balance sheets, allowing them to acquire companies, buy back shares and boost their dividends. However, companies that sit on their cash often frustrate their shareholders.
These companies have some of the biggest cash piles, according to data compiled by the financial data service I-Metrix. Here's how the cash could or should be used.
10. General Electric
Short-term investments: $41.6-billion
How will it be used? GE got a lot of flak for slashing its dividend last year after Chief Executive Jeffrey Immelt said the company would maintain the dividend despite the woes of its finance unit and the economic downturn.
Now that the economy is strengthening, many are speculating that the company will raise its dividend by 2011. Share repurchases may be a better route for the company. If conditions in Europe lead to more pain in the coming years, it would be easier to end a buyback program than slash the dividend again.
The company may also look for acquisitions in the near future if it can find post-recession deals. However, that may not be the best course of action. Aggressive diversification is what saddled the company with holdings such as NBC Universal.
Short-term investments: $21.88-billion
How will it be used? Ford hasn't paid a dividend since 2006. While this massive cash balance may leave many salivating at the potential for a return of a yield, the company is still getting its financial house in order so a dividend would be premature. Stock repurchasing is also out of the question as the company focuses on fixing its negative equity position.
Ford should keep this cash, plow it into research and development, and try to build on its recent success. Toyota is weak now, so this could be a golden opportunity to deploy its cash to strike while the iron is hot. Also, for any company with heavy debt, keeping a big cash stash will help bondholders sleep at night.
Short-term investments: $23.4-billion
How will it be used? Toyota has had a bad year. Just as Camry drivers are grateful to have airbags, many Toyota investments may be glad the company has a huge cash cushion to fall back on. The company paid out $4.47- billion in dividends in the year through March 2009, but cut that payout to $1.86-billion in the year ended March 2010. The company also cut share repurchases aggressively and took on a heavier debt load.
While dividend and share repurchases may eventually be increased to the previous levels when the company is stronger, don't expect much else. The company is licking its wounds and won't forget its fall from grace in 2010.
Short-term investments: $31.51-billion
How will it be used? Microsoft began paying a dividend in 2003 after the company finally caved to pressure to return some of its massive cash pile to shareholders. The company paid out $4.46-billion in dividends in the year ended June 2009, and bought back $8.8-billion worth of shares. These are healthy levels, so don't expect much more cash to flow to the shareholders.
Microsoft's cash allows it to be highly liquid and unbeholden to creditors. The majority of its cash is in short-term investments, so investors can rest assured that interest is being earned.
Short-term investments: $34.93-billion
How will it be used? The time may be at hand when Cisco will fulfill its promise to pay a dividend. As one of the only Dow components that doesn't pay one, the news would be warmly welcomed by investors that have seen the cash on its balance sheet grow to nearly $40-billion.
The company offers a nice share repurchase program that would appeal to some investors because it allows investors to avoid current income and its associated tax implications. Cisco may simply choose to skip the dividend and go on an acquisition tear, of course. Either way, expect the money to be put to better use in the near future.
Short-term investments: $17.3-billion
How will it be used? It's hard to be critical of a company like Google that seems to be on top of the ball in nearly every action that it takes. The company has amassed about $26.5-billion in cash and has managed to avoid debt.
Considering the company's current share price and float, Google would need to pay out about $1.2-billion to achieve a yield of 1 per cent. That's fairly rich for a company that had about $1.5-billion in cash flow in 2009. Google should consider repurchasing shares to send some cash back to the shareholders, something it has been loath to do up until this point.
Short-term investments: $13.14-billion
How will it be used? Apple stopped issuing dividends in 1995 and never looked back. The stock has returned 24 per cent a year since then and the company is one of the most respected in the world. The problem with issuing a dividend is that one of the main beneficiaries would be Steve Jobs, who owns about 5.5 million shares. A dividend on Apple stock would certainly buy a lot of turtlenecks for Jobs, but he hardly needs the cash. A better option for Apple would be a share buyback.
Short-term investments: $16.42-billion
How will it be used? Pfizer paid out $8.5-billion in 2008 and $5.5-billion in 2009. Investors could see the payout climb again now that things are starting to brighten, but it may be best for Pfizer to spend the cash on acquisitions.
A couple of sound acquisitions could help Pfizer strengthen its pipeline and may provide a better return for shareholders than a beefed-up dividend.
2. Johnson & Johnson
Short-term investments: $4.27-billion
How will it be used? Johnson and Johnson pays out and repurchases at a steady clip. There have been no obvious missed opportunities.
Johnson and Johnson focuses on old-school business practices by paying a strong dividend, keeping a steady balance sheet with good liquidity and avoiding frivolous practices or expenditures.
Short-term investments: $8.16-billion
How will it be used? Oracle has been getting into the acquisition mode with purchases of Sun Microsystems and Phase Forward. The company pays a rather skimpy dividend but share repurchases were beefy in 2009 at $3.2-billion.
These seem like positives for the company. It's better for Oracle to acquire proven technology than to waste time trying to develop it in-house. Stock buybacks are better for the company and shareholders than an increased dividend.Report Typo/Error
- General Electric Co$29.62+0.09(+0.30%)
- Ford Motor Co$12.07+0.10(+0.84%)
- Toyota Motor Corp$116.06+0.07(+0.06%)
- Microsoft Corp$57.60+0.20(+0.35%)
- Cisco Systems Inc$31.72+0.33(+1.05%)
- Alphabet Inc$777.29+2.28(+0.29%)
- Apple Inc$113.05+0.87(+0.78%)
- Pfizer Inc$33.87+0.55(+1.65%)
- Johnson & Johnson$118.13+0.86(+0.73%)
- Updated September 30 4:00 PM EDT. Delayed by at least 15 minutes.