WSJ: Dividends, Buybacks Set New Benchmark for Largess

[question everything]

Dividends, Buybacks Set New Benchmark for Largess

As Corporate Coffers Swell, Holders Reap the Rewards; The $1,700-a-Head Bracket
By IAN MCDONALD
Staff Reporter of THE WALL STREET JOURNAL
November 28, 2005; Page A1

Cash-rich American companies are showering a record windfall on their shareholders -- and in the process stirring some concern about future growth of the U.S. economy... But there could be an economic downside to the cash glut. The fact that companies have been sitting on so much cash is, in some respects, a vote of no-confidence in U.S. economic prospects: At least some companies may be signaling they can't find enough profitable ways to reinvest their earnings, so they are simply returning it to shareholders.

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Currently, U.S. companies are sitting on near-record levels of cash. Among industrial companies in the S&P 500, a grouping that excludes financial firms, which are required to hold hefty reserves, the amount totals nearly $631 billion on the books. That figure represents more than 7% of these companies' market value -- the highest percentage since 1988. Some economists call the payouts this year an ominous development that may be stealing from future economic growth, since they suggest companies are having trouble spotting new products, projects or services they think will boost their growth. "These payments keep the economy growing more slowly because that money isn't flowing into capital spending," says Milton Ezrati, chief economist at Lord Abbett Funds in Jersey City, N.J. "If businesses are giving up on innovation, we have problems."

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A big driver of the record profits making these payouts possible isn't a runaway economic boom, but rather deep corporate cost-cutting in recent years. After the accounting scandals and economic downturn that followed the end of the tech bubble, executives pulled in their horns. Instead of shopping for acquisitions, many companies have refinanced debt to take advantage of lower interest rates and hacked away at costs that built up during frothier times.

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So when the economy finally got some traction in recent years, companies were leaner and more profitable. For a record 14 consecutive quarters, companies in the S&P 500 have reported double-digit profit growth, according to S&P's Mr. Silverblatt. His firm's projections have the record streak lasting at least two more quarters. If profits do remain strong, however, employees and unions may put pressure on companies to direct more of that money to higher wages and benefits, after several quarters of modest wage growth and benefit cuts at many firms amid rising health-care costs.

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Write to Ian McDonald at [e-mail]

URL for this article:
http://online.wsj.com/article/SB113314797344607862.html (subscription)

[TahitiNut]

1. More proof of the FRAUD of "trickle down"

It's insane to pretend there's any validity whatsoever in Voodoo Economics. When the consumer loses his/her job, (s)he stops being a consumer. (Even the language of "job loss" is a fraud - it's "job theft"!) Without a customer, there's no work recipient.

It's time to raise the federal minimum wage to $7.50, reduce the full-time work week to 36 hours with double-time for more than 9 hours per day or 36 hours per week, and eliminate "exemptions" for anyone not an officer of the company/corporation. Unemployment should pay 75% of a full-time job at minimum wage and continue as long as no work is available.