Where to Find Big Corporate Cash "Giveaways"by
The Federal Reserve may be tapering its bond purchasing program, but "quantitative easing" is alive and well thanks to U.S. corporations. Drew Matus and Julian Emanuel of UBS explained on Surveillance how companies are effectively engaging in their own version of "QE" by distributing cash to prop up share prices.
The strategy is understandable in an environment where gross domestic product is expanding at an anemic rate of 0.1 percent. Companies hard-pressed to grow their businesses organically are paying dividends and reducing share count in order to maintain 5 percent to 7 percent cash-on-cash returns for investors.
The concern, as Mssrs. Matus and Emanuel indicate, is the substitution effect where companies "give away" money rather than reinvest in the form of capital expenditures. Ultimately, top-line growth will justify investment and companies will generate higher returns. Until then, investors must acknowledge the slow-growth reality of PIMCO's "new normal" and take growth where they can find it... even if that means settling for corporate QE.
We found 23 such companies in the S&P 500 Index. We screened for dividend yield above 2 percent, dividend growth of 15 percent and buybacks announced within the past year.
We shared six well-known examples on-air and provide the full list for blog readers: ACE Limited (ACE ), Apple Inc. (AAPL ), Cisco Systems, Inc. (CSCO ), Ensco PLC (ESV ), Fifth Third Bancorp (FITB ), GameStop Corp. (GME ), International Paper Co. (IP ), Invesco Ltd. (IVZ ), JPMorgan Chase & Co. (JPM ), Kraft Foods Group Inc. (KRFT ), Lockheed Martin Corp. (LMT ), MeadWestvaco Corp. (MWV ), Microsoft Corp. (MSFT ), Occidental Petroleum Corp. (OXY ), Omnicom Group Inc. (OMC ), Principal Financial Group Inc. (PFG ), Prudential Financial Inc. (PRU) , Quest Diagnostics Inc. (DGX ), Seagate Technology PLC (STX ), Starwood Hotels & Resorts Worldwide Inc. (HOT ), U.S. Bancorp (USB ), Wells Fargo & Co. (WFC ), Wisconsin Energy Corp. (WEC ).
One final note: Corporate QE is working. Just as the Fed's bond buying has lifted global bond prices, corporate largesse is lifting stock prices.