by Dan Burrows | September 27, 2013 8:25 am
Cash is king.
Shareholders love it when it’s returned through dividends and buybacks (although companies often waste it on dumb acquisitions). And there’s nothing quite like cash to fortify a company’s balance sheet. Plus, you sure can’t pay your suppliers, employees, bankers or bondholders without it.
But you can’t give shareholders what you don’t have, so companies have to stockpile the greenbacks.
Mission accomplished: Publicly traded U.S. corporations continue to pile up record levels of cash. Indeed, S&P 500 companies (excluding financials) saw their cash and cash equivalents grow 13.5% to $1.27 trillion at the end of the second quarter — the latest period for which data are available, according to FactSet.
That’s a whole lot of firepower waiting to be deployed once the economy picks up. At the very least, companies growing their cash piles at a rapid pace are going to have to make some decisions about what to do with it.
In the meantime, we can expect even more of that cash being returned to shareholders.
Here are the companies with the highest year-over-year growth rates in cash, cash equivalents and short term investments, according to FactSet. (Companies with less than $500 million in cash last year are excluded):
Cash: $1.78 billion
1-Year Growth Rate: 113%
Cash Relative to Market Cap: 11.2%
1-Year Total Return: 26.8%
Parker-Hannifin (PH) manufactures motion and control components for a range of industries, from aerospace to climate control.
One thing PH always gets praised for is a long history of strong, positive cash flow — and having little financial leverage. Furthermore, Parker-Hannifin is going to have to hike its dividend if it hopes to get back to a more normal level. Currently, the yield on the dividend stands at 1.6%, but the five-year average yield is 2%.
Cash: $2.21 billion
1-Year Growth Rate: 144%
Cash Relative to Market Cap: 11.7%
1-Year Total Return: 40.1%
Like Parker-Hannifin, Ingersoll-Rand (IR) is a industrial-sector conglomerate socking away the cash. Also like Parker-Hannifin, the dividend needs to rise to get back to average levels. The current yield is 1.3% but the five-year average stands at 1.7%.
And, make no mistake, IR is good for its payouts. It has paid dividends without a break since 1910. The company also is returning cash to shareholders through a $2 billion share repurchase program.
Cash: $5.99 billion
1-Year Growth Rate: 155%
Cash Relative to Market Cap: 15.4%
1-Year Total Return: 21%
Baxter (BAX) has been hiking its dividend regularly and by a lot. In May, the bioscience and medical device manufacturer raised its dividend by 9%, which came hard on the heels of a 34% increase at the end of 2012. The current dividend yields 3% vs. a five-year average of 2.8%.
Additionally, Baxter’s board approved a new share repurchase program for up to $2 billion in stock. That’s on top of the $450 million left from an older $2.5 billion share repurchase program.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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