S&P Equity Research Study Examines Dividends, Buybacks, and Other Uses of Cash by S&P 500 Companies

NEW YORK, Nov. 22, 2010 /PRNewswire/ -- Approximately 71% (353) of companies in the S&P 500 bought back stock and paid dividends during the three-year period ending June 30, 2010, according to a new report issued by Standard & Poor's Equity Research.  Another 19% of the companies (95) just repurchased their common stock, while about 8% (39) just paid cash dividends and the remaining companies (13) eschewed both dividends and buybacks.

"From a total return perspective, companies that focused solely on dividends or solely on buybacks fared much better than those engaged in both strategies," said Todd Rosenbluth, an S&P Equity Analyst and co-author of the report.  Companies that paid only a dividend generated an average unweighted total return of minus 12.7%, slightly worse than the minus 10.5% return for the buyback-only group, but considerably better than the dividend and buyback group return of minus 21.3%.  "This may reflect skepticism about adequate growth prospects and/or resources for companies committing capital to dividends and buybacks," said Mr. Rosenbluth.  

While cash on the balance sheets of most major U.S. companies continues to grow, the Financial sector is one notable exception to this trend.  "Perhaps in part because of the need to repay TARP money, or perhaps because fundamentals at banks and brokers have been weak over the last three years, cash and short-term investments in the Financials sector were essentially flat during this time frame, " said Stewart Glickman, an S&P Equity Analyst and co-author of the report.  "Looking at all non-Financials, cash balances are up more than 40% since the end of June 2007, but the pace of cash hoarding has begun to slow."

Among the companies not paying dividends or buying back their stock are Electronic Arts (Nasdaq: ERTS 15*), Jacobs Engineering (NYSE: JEC 40*****), and Ford Motor Company (NYSE: F 16***).  ERTS and JEC have been using their cash and short-term investments for acquisitions, according to the S&P equity analysts covering the companies.  Ford did not make any acquisitions in the last few years, choosing to augment its cash by streamlining its operations amid the challenges faced by the auto industry.  

For more information about this report, which looks at past and potential future uses of cash on a GICS sector level, please contact the S&P Product Specialist desk at 1-877-219-1247 or via email at www.getmarketscope.com.  

Members of the media may get a full copy of the report by contacting [email protected].

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Disclaimer:

The S&P 500 is an unmanaged, statistical composite and its return does not reflect payment of any sales charges or fees an investor would pay to purchase the securities it represents. Such costs would lower performance. It is not possible to invest directly in an index. Past performance of the index is not indicative of future returns.

SOURCE Standard & Poor's