Corporations are Flush with Cash

According to a recent Standards & Poor’s report, cash holdings of corporations today are at record levels, up 26% from a year ago.  U.S. corporations now have $1.8 trillion in cash; prominent tech companies are one of the top cash hoarders: Microsoft, Cisco, and Google have about $30 billion each.  It appears that corporations, like many mutual funds and individual investors, are concerned with “unusually uncertain” economy and seek safety with near zero returns on that cash.

But at some point, this cash has to go to work.  There are several possible ways for companies to use their cash reserves:

• buy back shares
• increase or initiate dividend
• hire new workers
• buy out other companies
• invest in their own business

Many of the above is good for the economy and all are good for the stock market.  After all, keeping all that cash is not without its own risks, such as facing ever lower interest rates and inability to beat inflation with money market yields.