According to a Moody’s Investors Service’s recent report, about $504 billion of a $1.7 trillion worth of corporate cash in the U.S. is in the hands of just five tech companies. Additionally, nearly 75 percent of all corporate cash is stored in bank accounts or investments located abroad.
Moody’s investigators found that Cisco Systems, Oracle, Apple, Google’s parent firm Alphabet and Microsoft own 30 percent of all U.S. corporate money. Researchers noted that this is even more cash holdings for the five U.S. tech firms than in other years. In 2014, they had just 27% of all the cash, while a year prior they had 25%. The report also shows that the iPhone maker has more cash holdings than eight out of 10 tech industry sectors combined.
U.S. corporations seem to hoard money overseas as a response to stalling profits and stock market prices. Last year, the U.S. pile of corporate cash rose by 1.8 percent. But investors should not rush to celebrate as 72 percent of that cash is residing outside the country. In 2013, only 58 percent of that cash was stockpiled overseas. The increase may be due to companies’ efforts to dodge the U.S. corporate tax system.
Nevertheless, some investors are confident that the cash piles may result in generous dividend returns despite falling stock prices. In 2015, dividends jumped 4 percent marking a record level of $404 billion. In the meantime, firms did some savings and trimmed capital spending by 3 percent. Capital spending is the money companies plan to invest in new technologies and projects to boost profits on the short and long terms.
Companies have also made some savings by simply refusing to buyback their own stock. Last, year, stock buybacks slipped 7 percent to nearly $270 billion. The move, however, should make stocks more valuable as the number of shares is reduced.
Apple, on the other hand, remains a paradox. Although the tech giant sits on the highest pile of cash, investors reported $240 billion losses in paper returns since the stock reached its highest level.
But the most disturbing aspect in the Moody’s report is that U.S. companies that do not have ties with the financial sector have $1.2 trillion stashed overseas. In 2013, they had $947 billion outside the country. Authors of the report believe that the cash piles overseas are slated to grow even bigger.
It is no surprise that the largest cash hoarders who stock their assets outside the U.S. are also the biggest earners. The five said tech firms that hold 30 percent of all corporate cash have so far stored $441 billion in other countries, which account for 87 percent of their total cash holdings.
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