Why Corporations Are Ducking New Investment in the U.S. Economy
The unprecedented amounts of cash floating through the economic system have fostered an unfortunate environment in which corporations don’t need to make substantial new investments in their operations.
While this creates a more positive environment for investors, Main Street is left out, twisting in the wind.
Among the many blue-chip corporations that recently announced substantial increases to their dividends, there are three stocks worth taking a look at:
1. PepsiCo, Inc. (NYSE/PEP)
PepsiCo is an unbelievably good business and a very good stock market holding if you’re a long-term investor.
The company’s first-quarter earnings results were excellent, and it was very evident that an increase in dividends was going to happen, because the company’s cash balances soared.
PepsiCo announced an increase of six percent in its annual dividends to $2.27, from $2.15 per share. This is the company’s 41st consecutive annual dividend increase.
2. Costco Wholesale Corporation (NASDAQ/COST)
Costco is a super cash machine.
On the stock market, the position has doubled over the last three years, which is impressive for such a large, mature, and low-margin business.
This corporation is consistently increasing its dividends.
Company management recently announced a quarterly dividend increase from $0.275 to $0.31 a share, or from $1.10 to $1.24 per share on an annualized basis, for a 12.7% gain.
3. International Business Machines Corporation (NYSE/IBM)
This technology bellwether reported first-quarter earnings just shy of expectations. Still, investors continue to buy this stock because the business is solid and the company is increasing its dividends.
International Business Machines (IBM) raised its quarterly dividends by $0.10 to $0.95 per common share, for a gain of 12%.
According to the company, this was the 18th consecutive year it increased its quarterly dividends and the 10th consecutive year of double-digit growth. IBM has increased its dividends over 600% since 2000.
These corporations are just three of the large number of increased dividends that have occurred over the last several quarters. The cash hoarding continues. Corporations do not wish to invest very much in new operations, new business plans, or risky ventures.
While increasing dividends and share buyback programs are always welcome for stock market investors, I firmly believe that the lack of investment on the part of corporations is really holding the U.S. economy back.
The one thing that is keeping all investors frazzled is the lack of certainty. Improving certainty needs to absolutely be a top priority.