Technology companies are the most obvious candidates in the Standard & Poor’s 500 Index to spend more of their cash on payouts and investments, according to Gina Martin Adams, a Wells Fargo & Co. strategist.
“There is plenty of opportunity for cash stockpiles to benefit shareholders, if and when they are deployed,” Martin Adams wrote yesterday in a report. “Companies in the technology sector offer the best possible prospects for cash deployment.”
As the CHART OF THE DAY shows, cash and equivalents among companies in the S&P 500 Information Technology Index amounted to 28.5 percent of total assets as of yesterday. The ratio was the highest since the third quarter of 2004, when it peaked at 28.8 percent, and was calculated on a per-share basis.
Technology companies are increasingly turning to stock repurchases to return cash to shareholders, Martin Adams wrote. She cited data showing buybacks for companies in the index rose 68 percent in the last 12 months from a year ago.
Dividends and capital spending are rising as well, the New York-based strategist wrote. Payouts climbed 19 percent during the 12-month period from a year earlier, the report said, and the industry group’s capital outlays are rising at triple the rate for the S&P 500.
The combination is “a strong backdrop for technology to continue to benefit from shareholder desire for cash outlays,” Martin Adams wrote. The technology index closed yesterday with a year-to-date advance of 6.8 percent, exceeding the S&P 500’s gain by two percentage points.