Little by little, the corporate cushion is shrinking.
Pressured by a year and a half of weakening profits and splurges on buybacks and dividends, the once-towering piles of money at American companies have started to topple. Cash and equivalents slipped to a median $860 million at S&P 500 Index members last quarter, touching levels not seen for three years, according to data compiled by Bloomberg.
While hardly a portent of mass insolvency, the slippage complicates the balancing act for chief executives trying to keep shareholders appeased while earnings drop. Spending on share repurchases, which inoculated investors from the sputtering economy for seven years, is getting harder just as the Federal Reserve weighs raising interest rates.
"Those things are going to leave a mark when lending starts to get a little more tough and companies have to rethink some of these buyback announcements and dividends," said Sameer Samana, a St. Louis-based global quantitative strategist at Wells Fargo Investment Institute.
At first glance, S&P 500 companies look flush, with cash outside the financial sector at $825 billion at the end of the second quarter, near the highest of the bull market. The catch is that the money is concentrated: The top 50 richest companies in the benchmark index account for more than half the total.
For the other 90 percent, balances are being reduced at the fastest rate since the start of the bull market. Total cash for that group was $385 billion in the second quarter, compared with $447 billion at the end of 2015 and down 10 percent from the year before, Bloomberg data shows.
Pressure is building at U.S. corporations that have chosen to return money to shareholders instead of spending it on plants and equipment. Investor priorities are shifting: Companies with the highest capital expenditures are beating those with the most share buybacks in the stock market, S&P index data compiled by Bloomberg show.
"The missing ingredient has been that elixir called growth," said Eric Wiegand, senior portfolio manager at the Private Client Reserve of U.S. Bank in New York. "There hasn't been the level of conviction to put out anything of consequence in cap-ex. To see any sustained advance we need to see demonstrations of growth."
