U.S. companies are better positioned for “cashing out” shareholders than at any other time in more than half a century, according to Myles Zyblock, chief institutional strategist at RBC Capital Markets.
The CHART OF THE DAY shows cash and other liquid assets as a percentage of corporations’ total assets, based on quarterly data compiled by the Federal Reserve. Last quarter’s reading was 7.5 percent, the highest since 1959.
Corporate cash increased by more than $200 billion in each of the past three years, including a $340.9 billion surge last year. Companies are poised to sustain the growth rate in their “cash mountain,” Zyblock wrote two days ago in a report that featured a similar chart.
Many companies are raising more money through bond sales because interest rates are low, the Toronto-based strategist wrote. The yield on a Moody’s Investors Service index of Baa rated corporate debt has averaged 5.2 percent this quarter, about 0.9 percentage point less than a year earlier.
Increased cash and relatively cheap debt financing will lead to growth in dividends as well as stock repurchases, the report said.
Health-care and technology companies have the most room to lift payouts and buy back more shares, Zyblock wrote. The groups have the highest percentage of cash to assets for non-financial companies, based on figures for the Standard & Poor’s 500 Index that he cited. Energy producers are another possibility, he added, because they have relatively little debt.