As corroboration for my previous post, read Bloomberg’s Record Cash Weighing on U.S. Stock Market Returns: Roben Farzad. Farzad says that investors should be asking for cash rich corporations to return their money as dividends:
“Some aggressive motion could come in handy right now, because a return to activist investing by hedge fund managers is precisely what the market needs. It could help prod cash-rich companies to increase their dividends, thus making equities more attractive to investors in a time of low returns.”
The highly respected James Grant from the Grant Interest Rate Observer seems to be on my side:
“James Grant of Grant’s Interest Rate Observer in New York dedicated his June 11 newsletter to screening for big names like Bentonville, Arkansas-based Wal-Mart Stores Inc. and Kimberly- Clark Corp. in Dallas that throw off cash and yield more than overrated, over-printed Treasuries. Bonds have outperformed stocks in the past six months, even though 10-year government bonds offer about 3 percent.
“As for the government’s well-exhibited capacity to conjure money,” writes Grant, “we can’t think of a better reason not to own government securities. Hence our preference for big, stable, dividend-paying corporations.”
Grant points to Orlando, Florida-based Darden Restaurants Inc., which runs the Olive Garden and Red Lobster chains. He noted its roughly 25 percent return on equity and 2.3 percent dividend yield. Darden holds more cash than it knows what to do with: $249 million as of May, a quadrupling over the same period last year. On June 23, the company raised its dividend, boosting its payout rate to 3.1 percent. Yet the stock is still 21 percent off its year’s high. Investors are not impressed — at least not yet.”