There is now more evidence that
companies with huge cash hoards are returning the money to shareholders,
rather than making any bold new investments themselves. Last Friday,
General Electric Company (NYSE/GE) announced that it would increase its
quarterly dividend
to $0.19 a share, up from $0.17, and it authorized an increase in the
amount of shares it can repurchase to $10.0 billion by the end of 2015.
On
the stock market, General Electric (GE) has been recovering pretty
well, but since the financial crisis, the stock has underperformed the
main stock market indices. Investors all love dividend increases, and
I’m the first to applaud the company for doing so. But the return of
excess cash in the form of dividends and share buybacks also represents
the unwillingness of companies to make any bold new investments in its
operations. It’s a very uncertain world out there, and companies aren’t
willing to bet like they used too. GE’s stock market chart is below:
Chart courtesy of www.StockCharts.com
GE
has been a solid dividend payer but a terrible stock market investment
over the last 12 years. The company’s heyday on the stock market, it
would seem, was the 20 years leading up to 2000, when the stock
appreciated 58-fold, not including dividends. Today, the stock is
trading today at less than half of its record high, which is not the
kind of blue-chip performance you expect from such a large company. (See
“Dividend Yields Going Up—the Outlook for Stocks, Not So Good.”)
Just
like last quarter, there’s a very high chance of a lot more dividend
hikes when fourth-quarter earnings season begins. Even if earnings
aren’t great, the company will raise its dividends to keep shareholders
happy. The cash story is a good one for investors but not for the Main
Street economy. GE’s cash position took off last year, but the company
isn’t really growing, so another dividend hike from this business
probably won’t happen for another couple of years.
After the stock market
tanked during the financial crisis in 2008 and 2009, there must have
been a lot of soul-searching at the corporate level, because companies
are clearly not willing to take big risks in this environment. It’s a
similar story with individuals. Sovereign debt crises, deficits,
unemployment, real estate prices, political policy (or a lack thereof),
war—it all wears on the system, and just like I’ve been writing that a
highly conservative stance is warranted with the stock market and other
investments, corporations are doing this themselves.
We’ll
get a bounce in anticipation of a deal on the fiscal cliff. There are
no good taxes, but practically, I think it’s better for tax policy to
encourage saving and investing, while taxing income. The stock market
really seems stuck here, with little prospect of increased earnings
expectations in the first half of 2013. The situation in the eurozone
remains the same; however, recent data from China are encouraging.
I
expect so little from the stock market in 2013 that the only
expectation I have is the return from dividends. The next couple of
years are going to be tough for the U.S. economy, as the system is still
in the process of balancing itself out after all its excess. Real
economic growth is now a difficult thing to come by.
Article Source: Profitconfidential