The W$J is talking about the flood of dividends and share repurchases in 2005. The total from the S&P 500 is up by 30% over 2004, itself a record year. The good news is that corporate profits have been high. The bad news -- or, more properly, the potential bad news -- is that American companies may be short on ideas:
The fact that companies have been sitting on so much cash is, in some respects, a vote of no-confidence in U.S. economic prospects: At least some companies may be signaling they can't find enough profitable ways to reinvest their earnings, so they are simply returning it to shareholders.
I doubt that this explains the upsurge in dividends. A competing hypothesis seems more plausible to me, namely, that "U.S. companies are merely starting to bring their payouts to shareholders back near historical levels in a mature economy with more pressure for shareholder-friendly corporate governance in the wake of accounting scandals."
There is a tax story here, too, as dividends are currently taxed at only 15%. That tax rate has been in effect since 2003, and that's when dividends started trending upward.
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1. Posted by Robert Schwartz on November 28, 2005 @ 0:54 | Permalink
the ratio between corporate cash distributions and stock prices had been at a historic low at the end of the 1990s bubble. In order for more traditional valuations to reassert themselves, either distributions had to go up or stock prices had to go down. It is only now that we are seeing a more traditional balance, and the market is starting to move up.
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