Getting cash-cow corporations to share their wealth

CHICAGO Mon Mar 12, 2012 4:48pm EDT

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CHICAGO (Reuters) - When a profitable company is sitting on tens of billions of dollars in idle cash, why can't it automatically raise dividends to reward its shareholders? After all, with savings yields at dismal levels - and likely to remain so - those on fixed-incomes could use a boost.

But companies won't share the wealth, and the reason why they won't is an indictment of the U.S. government's inaction on corporate tax loopholes.

The problem in Washington: Corporations are offshoring more than $2 trillion in corporate cash.

One thing is clear based on a Reuters study: Cash hoarding and stock buybacks have not done much to boost share prices.

Companies in the Standard & Poor's 500 index of the largest industrial corporations are sitting on some $1 trillion in cash. Most of that money has done little or nothing to raise share prices, Reuters has found. Cash as a percentage of the S&P's market value is nearly double what it was a decade ago - and that's after one of the worst market crashes in history.

Some of the cash piles are beyond the pale. Apple Inc, which continues to make devices that people treat as beloved pets, is one of the most profitable and highly-valued companies on the planet. It's sitting on about $100 billion as of late January. You'd think that the company would at least show some more love to its loyal shareholders.

OFFSHORE CASH

Raw numbers showing balance sheet cash can be deceptive, though. Companies don't have to tell investors exactly where the cash is sitting, said Ashley Sparks, research associate with REL Consulting.

A large chunk of it could be in some Caribbean bank or earmarked for future research and development. You have to look carefully at the "discussion and analysis section" of company 10-K annual reports to see how the cash may be deployed; even then it's not that clear.

Prying the cash loose from companies is difficult when they've shoveled it into tax havens in Bermuda and the Cayman Islands. If corporate treasurers bring the money back stateside, they'll eventually have to pay taxes on it - unless Congress grants them a politically-toxic tax holiday. Then, even if the companies pay dividends, their shareholders will have to pay taxes on the payouts.

Cisco Systems Inc, for example, which makes some fine network routers (that I use), had about $47 billion in cash sitting on its balance sheet at the end of the second quarter of fiscal year 2012. Legendary consumer activist and former presidential candidate Ralph Nader, who holds the stock, last year urged Cisco to raise its dividend. On February 7, Cisco's board voted to raise its dividend 8 cents a share, a whopping two-penny increase over the previous quarterly payout.

Nader said he felt his pressure had something to do with the dividend increase. A Cisco spokesman did not directly comment on Nader's influence.

Nader had urged Cisco to approve a 50-cent dividend and a special $1 a share payment. He says it's also possible for cash-rich tech giants like Apple, Microsoft Corp, Google Inc, EMC Corp and others "to go to 4 percent dividends easily."

Why was Cisco being stingy? When I contacted Cisco spokesman John Earnhardt, he noted that "the vast majority of that money (the company's cash) is outside of the U.S. ... and only U.S. cash can be used for dividends."

He also cited a statement by Frank Calderoni, Cisco's chief financial officer, that the company was "using cash generated in its business to drive shareholder value, and to do so with a combination of stock repurchases, dividends, mergers and acquisitions and research and development."

Perhaps Cisco can better spend its money on buying other companies and its own stock, but the market isn't buying that rationale. Cisco's share price has been lingering under $20 a share lately and hasn't come close to its all-time high of $82 -reached in 2000 at the height of the tech bubble.

MOVING CASH AROUND

Moving cash around the globe has become an accepted way of doing business because it has an immediate impact on improving the bottom line. Some 83 of the top 100 public companies, according to the Government Accountability Office, have foreign subsidiaries for squirreling away cash. Most have more than one. One idea circulating Washington is to lower the corporate tax rate - which the Obama Administration has proposed - in exchange for shutting down loopholes.

In the much more dynamic court of public opinion, though, your most direct recourse is to organize like-minded shareholders to pressure companies to raise their dividends.

Although shareholder organization is notoriously difficult and no viable national group exists to fight for investors, Nader, for one, suggests that independent shareholder watchdog groups be formed for each company. They would be independent, funded by penny taxes on shares and be similar to effective citizen boards that represent utility customers.

For any effective shareholder organization to happen, Nader says shareholders should be able to communicate with each other, something Wall Street hates. It's time Occupy Wall Street befriended shareholder rights in a big way.

(The author is a Reuters columnist. The opinions expressed are his own.)

(Editing by Beth Gladstone and Andrew Hay)

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