Dividends: What Companies Should Do With Their Cash Hoards

In an article in Saturday's Wall Street Journal, Jason Zweig asked the question, "What will it take for companies to unlock their cash hoards?" At Smead Capital Management, we'd like to expound on his thoughts and examine our own portfolio under the magnifying glass presented. Zweig dealt with the key facts. First, companies with large cash balances are adding to them. Second, payouts are historically low as he showed through this research: "Meanwhile, the payout ratio - the proportion of earnings paid out as dividend income to shareholders - fell to 28.9% for the past four quarters. That, says S&P senior index analyst Howard Silverblatt, is the lowest level since 1936." Third, the point has probably come where the best interests of corporate management and the shareholders are at odds. Zweig zeroed in on Ben Graham's thoughts in regards to why big companies that generate high levels of free-cash flow... Read more