It’s widely reported that some $2 trillion in cash is sitting on the sidelines outside of the clutchs of the IRS. Investment analyst David Sterman observes that some of the nation’s biggest companies have a problem on their hands. Some of the piles of cash is piling up and CFOs need to “find ways to deliver the best returns to shareholders while keeping enough aside for a rainy day. With interest rates sitting at multi-decade lows, these executives can’t afford to let the money just sit there. That’s why more of them are looking at share buybacks, dividends, acquisitions or higher levels of capital spending to take some of that cash off of the sidelines and put it into action.”
He identifies 10 companies sitting on what he describes as “stunning amounts of cash” (he excluded traditional banks, which must have large cash balances to meet liquidity requirements). What are they doing with that money? Each one is using cash as a strategic weapon, boosting shareholder returns by any means possible. What follows is his list and his take where management might be headed.
| 1. Chevron (NYSE: CVX) Cash Balance: $43 billion |
| Selling oil and gas is so profitable that three of this industry’s biggest players make the grade when it comes to major cash positions. Chevron has $43 billion in the bank at last count, and with more than $8 billion in annual free cash flow, look for that figure to keep on rising. Management has sought to keep returning some of that cash to shareholders: the annual dividend has steadily risen from $1.43 in 2003 to a recent $3.60 a share. |
| 2. Google (NYSE: GOOG) Cash Balance: $44 billion |
| Executive Chairman Eric Schmidt can go in many directions. Google is legendary for funding many internal ideas that would get the red light at other firms. Management believes that you need to pursue a wide range of ideas raised by the company’s engineers and marketers, hoping one or two pay off handsomely. Yet Google will also break out its checkbook when it spots an opportunity. The company shelled out a hefty $12.5 billion to acquire Motorola Mobility in 2011 in a bid to boost its presence in mobile. That works out to be roughly one year’s worth of free cash flow, implying Google can keep seeking out similar deals without even denting that cash balance. |
| 3. ConocoPhillips (NYSE: COP) Cash Balance: $45 billion |
| Oil giant ConocoPhillips has a seemingly impressive $45 billion in the bank. But most of that cash is tied up in a range of joint ventures across 15 countries and four continents. Still, a steadily rising payout has been the beneficiary of the unrestricted cash, enabling ConocoPhillips to offer investors a 4.5% dividend yield, the largest payout among the “oil majors.” |
| 4. Ford Motor (NYSE: F) Cash Balance: $51 billion |
| Just a few years removed from a devastating industry downturn, Ford makes a surprise entry among the cash-rich list. Consider these numbers: At the end of 2007, Ford had $168 billion in long-term debtagainst $87 billion in cash.
By the end of 2011, Ford’s debt had fallen below $100 billion — a $68 billion reduction — while cash dropped to $51 billion — a $36 billion reduction. That means Ford has managed to boost its financial strength by $32 billion in just four years — even as the auto industry has been in a big slump. Ford’s cash balance is now more than ample to fund internal investments: Ford needs roughly $4 billion a year for capital expenditures. Ford has also signaled plans to pay greater attention to its dividend in 2013 (the current $0.20 annual payout works out to be paltry 1.9% yield). Also, look for the company to buy back big chunks of stock while the share price is so depressed. Either way, it’s a win/win for shareholders. |
| 5. ExxonMobil (NYSE: XOM) Cash Balance: $52 billion |
| This oil giant bought natural gas producer XTO Energy for more than $40 billion in late 2009, right before gas prices tumbled. Had ExxonMobil waited a few years, it would have been able to buy it for a lot less. Investors are far more pleased with the company’s track record of stock buybacks: The share count has shrunk from 6.3 billion in 2005 to a recent 4.8 billion. A rising dividend also helps ease the pain of that botched acquisition. What will ExxonMobil do with its current $52 billion pile of cash? Likely more buybacks and an even fatter payout. |
| 6. Cisco Systems (Nasdaq: CSCO) Cash Balance: $56 billion |
| Like many other high-tech companies, Cisco historically eschewed dividend payments, though it belatedly began giving a payout in 2011 that still yields just 2.9%. Over the years, Cisco has instead mostly focused its massive cash hoard in two other areas: acquisitions and buybacks. Cisco has made more acquisitions than any company in the world in the past 15 years, according to research firm Factset.
Cisco is also the king of stock buybacks, having re-acquired more than 1.6 billion of its shares since 2004. Its total share count has shrunk by nearly a quarter since then. With $56 billion still in the bank, Cisco may just be on the prowl for another acquisition that gives it newfound respect among investors. |
| 7. Microsoft (Nasdaq: MSFT) Cash Balance: $73 billion |
| When it comes to deal-making, Microsoft may not be quite as gun shy as it has been in the past. The company picked up Skype for $8.5 billion roughly a year ago, and the move is already reaping many benefits according the company. That just might embolden the board to go out and seek another deal that sharpens Microsoft’s game against fast-moving rivals. In fact, the current $73 billion cash balance could help to buy up dozens of small, promising tech companies, giving Mister Softee a foothold in newer, faster-growing markets. |
| 8. Apple (Nasdaq: AAPL) Cash Balance: $117 billion |
| The house that Jobs built also has a growing cash conundrum. Years of rapid and profitable growth have boosted the company’s coffers to the tune of $117 billion. The technology titan just started paying dividends, though it can do a lot better than its current paltry 1.5% yield. You can probably forget about a major acquisition: Apple’s $2.5 billion in annual Research & Development (R&D) expenses appear to provide the company with all of the new products it needs. As a possible surprise for investors, Apple could look to issue a one-time $50 billion or $75 billion cash dividend to shareholders. |
| 9. GE (Nasdaq: GE) Cash Balance: $122 billion |
| Over the years, GE’s cash stash has enabled the firm to make a series of acquisitions that bolster its presence in healthcare, aerospace, power production equipment and finance. Under CEO Jeff Immelt, GE has slowed down its pace of acquisitions, but Immelt’s trigger finger may be getting itchy.
GE’s current cash balance has swelled from $51 billion in 2007 to a recent $122 billon. As a first order of business, GE could pay more attention to its dividend, which has fallen from $1.24 in 2008 to a recent $0.68. Just restoring the dividend to its former luster would create a 5.6% dividend yield. |
| 10. Berkshire Hathaway (Nasdaq: BRK) Cash Balance: $162 billion |
| Warren Buffett’s Berkshire Hathaway has a cash balance roughly the size of Pakistan’s economy. But Berkshire is an insurance company that must keep much of that cash on hand to pay out against policy claims. Still, that doesn’t stop Warren Buffett from using at least some of that cash to acquire high cash-flow businesses. In recent years, Berkshire has snapped up Burlington Northern, Lubrizol and others, while also holding stakes in companies such as American Express (NYSE: AXP),Coca-Cola (NYSE: KO) and other publicly-traded firms. |
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