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Companies Starting To Reach For Yield


Parsad
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I'm noticing alot of companies are starting to hunt for higher interest income from their large cash piles.  I think this is just the beginning as the yield curve in the US is flattening.  They can only do a few things...sit on it at low rates, pay down debt, buy back shares, acquire other businesses, expand their existing business, or start to reach for yield.

 

- sit on it...not a great alternative

- pay down debt...good idea, but rates on debt are also at historic lows

- buy back shares...good idea if the shares are undervalued

- acquire other businesses...only if it makes sense, but as you know CEO's get bored fast, thus the huge spike in M&A's this year

- expand their existing business...sure, but only if demand is there...for many, the demand is still muted

- reach for yield...corporate spreads from treasuries are nearly as low as they were back in early 2007...not much yield.  Where else...equities, real estate, commodities?  Cheers!

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I'm noticing alot of companies are starting to hunt for higher interest income from their large cash piles.  I think this is just the beginning as the yield curve in the US is flattening.  They can only do a few things...sit on it at low rates, pay down debt, buy back shares, acquire other businesses, expand their existing business, or start to reach for yield.

 

- sit on it...not a great alternative

- pay down debt...good idea, but rates on debt are also at historic lows

- buy back shares...good idea if the shares are undervalued

- acquire other businesses...only if it makes sense, but as you know CEO's get bored fast, thus the huge spike in M&A's this year

- expand their existing business...sure, but only if demand is there...for many, the demand is still muted

- reach for yield...corporate spreads from treasuries are nearly as low as they were back in early 2007...not much yield.  Where else...equities, real estate, commodities?  Cheers!

 

Novel idea for corporate use of excess cash - dividends?

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Sorry Watsa, don't know how I missed dividends...as well as special dividends which may be very likely.  Cheers!

 

Hahaha.  I couldn't help it.  We have clients exploring this...one client in particular just did a very large leveraged dividend (bullish sign).

 

There would also seem to be substantial incentive to doing those special dividends this year.  I suppose it will depend on how comfortable companies are feeling.

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