Stuffing corporate mattresses

Companies holding on to more cash than they have in decades; worries of another recession abound

By Kim Peterson Nov 4, 2009 1:08PM
Cash © Jonathan Kitchen/Getty ImagesI've recently written about Citigroup (C) and Ford (F) boosting their cash levels. They aren't alone.

Companies across the board are hoarding ridiculous amounts of cash -- more than they have in the last 40 years, The Wall Street Journal reports.

Should we be taking a lesson from these companies, who are acting like another economic meltdown is on the way?

Cash now makes up nearly 10% of the assets of the 500 largest non-financial firms in the U.S., the Journal reports. That's up from about 8% a year ago. And it looks like this percentage could climb to 11% soon.

"Everyone is hoarding cash," a Citigroup executive told the Journal.

There are several ways to look at this. Sitting on cash means companies aren't distributing that into the economy, which slows economic growth. On the other hand, the Journal points out, when the economy does get better, these companies can go on major spending sprees.

Most of these companies likely felt the pain of not having enough cash in a recession. Perhaps they had to refinance debt at rates that were too high, or couldn't get a loan they needed. Maybe they had to lay off too many employees.

The memories of the last year are too strong; so executives have begun to stockpile.

 "They'd have to beat me over my head to get it out of my hands," the chief financial officer of Alcoa (AA) told the Journal.

The aluminum company has at least $1.1 billion in cash now. Google's (GOOG) got enough to buy a small continent -- at $22 billion.

Pepsi (PEP) has about $3.5 billion, and it's not breaking that piggy bank to acquire two bottling companies for $7.8 billion. It's going to issue debt instead.

These moves seems to indicate an underlying fear that the recession may get worse, or that another one is on the way.

Investors are paying close attention to the numbers, and companies with too much cash are going to get pressured for dividends.

MSN's Jon Markman recently wrote that Apple (AAPL) should pay a dividend. The company has about $34 billion in cash, and could easily pay a 4% annual yield with plenty left over, Markman writes.

Investors at other cash-rich companies might feel the same way.

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