Time for Companies to Stop Accumulating Cash

In the aftermath of the global financial crisis, companies around the world have accumulated trillions of dollars in cash on their balance sheets. As far as investors are concerned, now is the time for companies to start using that cash to create shareholder value, according to a recent survey by The Boston Consulting Group. Its annual investor survey suggests investors want ompanies to start putting their trillions in cash into organic growth -- or return that cash to shareholders, preferably in the form of dividends.

"Dividends' growing importance to investors represents a major shift from attitudes in the past few decades, when capital appreciation accounted for the lion's share of TSR," added coauthor Frank Plaschke, a partner in BCG's Munich office. During the past 25 years, dividend yield at S&P 500 companies accounted for only 2.5 percent of an average annual return of 9.9 percent. "But a higher reliance on dividends happens to be a reversion to a longer-term historical trend," Plaschke continued. An analysis of the composition of TSR of the companies making up the S&P 500 from 1900 through 2010 shows that dividend yield accounted for nearly half of total TSR -- 4.6 percent of an average annual return of 9.5 percent."

Source: The Boston Consulting Group

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