While Standard & Poor’s 500 companies currently hold a record $960 billion of cash, their dividend payouts as a percentage of earnings are at a 75-year low.
That’s not right, writes Wall Street Journal columnist Jason Zweig. “In the past, companies paid out vastly more of their profits as dividends, and they should again,” he argues.
During the past four quarters S&P 500 companies paid out only 28.9 percent of their earnings as dividends.
Many experts agree that shareholders would be better off if companies returned their surplus cash as dividends rather than finding a way to spend it. Some cite Microsoft’s $8.5 billion purchase of Skype as an example of overspending.
"The likelihood of spending money poorly is increased by having a surplus of it," Daniel Peris, co-manager of the Federated Strategic Value Dividend fund, told The Journal.
Investors would do well to get wise about this situation and complain.
"If there were a greater historical sensibility among investors and managers, (low dividends) would be called out as an abnormal situation that's likely to lead to that money being less well-spent than it otherwise might be," Peris says.
There is a lot to be said for healthy companies that pay high dividends.
“The dividend is a concrete instance of goodness amidst epic questions about the fate of Europe's economy and slowing growth here in the United States,” writes Steven Sears of Barron’s.
“In short, dividends are beautiful.”
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