Cash is piling up fast on S&P 500 companies’ books — and investors want their share.
Just 15 non-financial companies in the S&P 500, including mainly tech giants like Apple (AAPL), Google-parent Alphabet (GOOGL) and IBD Long-Term Leader Microsoft (MSFT), are sitting on cash and investments of more than a $1 trillion, says an Investor’s Business Daily analysis of just-released annual 2020 data from S&P Global Market Intelligence and MarketSmith.
This massive cash pile accounts for nearly 40% of the $2.7 trillion held by all of the companies in the S&P 500. S&P 500 companies now have enough cash to give $8,103 to every man, woman and child in the U.S.
And investors want their share.
S&P 500 Cash Back On Investors’ Minds
Companies in the S&P 500 ended 2020 with nearly 20% more cash and investments than they had in 2019. And yet, they’re being stingy giving it back to its rightful owners: Shareholders.
Two ways shareholders get cash out of companies cooled off in 2020: Dividends and stock buybacks. Last year, S&P 500 companies only paid out in dividends what they paid out in 2019, says data from S&P Dow Jones Indices.
Meanwhile, companies are likely to only pay out $514 billion in buying back their own stock in 2020, says S&P Dow Jones Index Strategist Howard Silverblatt. That’s down 29% from the $728 billion companies spent buying back stock in 2019 and a third less than the record $806 billion spent in 2018.
And now investors want their money. Berkshire Hathaway’s Warren Buffett spent much of his annual letter to shareholders beholding the “costless” and powerful way stock buybacks add wealth.
Apple’s $196 Billion Cash Problem
Apple has a cash problem. It’s just the opposite of most. Apple has too much cash.
The technology company ended 2020 with cash and investments of $195.6 billion. That’s a staggering amount, totaling 7.4% of the holdings of all S&P 500 companies. To its credit, Apple is trying to dispense of the cash using both dividends and buybacks.
Last year, Apple spent roughly $81 billion buying back its stock, which Buffett applauded in his letter. But that’s just a drop in a rapidly filling bucket. Last year, the company posted more than $80 billion in free cash flow. Additionally, the company yields just 0.6%.
What Will Tech Do With All Its Cash?
Apple is the most extreme example of a cash surplus, but it’s far from alone in the S&P 500.
Alphabet, which doesn’t pay a dividend at all is sitting on cash and investments of $157.8 billion. That’s nearly 6% of all the S&P 500’s cash in the hands of a single company. And it just keeps piling up. Alphabet’s cash pile ended 2020 nearly 20% higher than it was in 2019.
Microsoft, too, pays a 0.9% dividend yield. And it worked down its cash and investments in 2020 by about 1%. But it’s still holding $135.8 billion, or 5.1%, of the S&P 500’s cash pile.
Silverblatt thinks buybacks will hit $674 billion this year, up 30% from 2020. Investors allowed companies to hold cash amid the pandemic’s uncertainty.
But with vaccines rolling out and economies opening, investors are going to want what’s theirs.
S&P 500 Companies With The Most Cash
Cash and investments as of end of 2020, financial sector excluded
|Company||Ticker||2020 Cash And Investments ($ Billions)||Cash Of % Held By S&P 500||Dividend Yield||Sector|
|UnitedHealth Group||(UNH)||$45.0||1.7%||1.5%||Health Care|
|Ford Motor||(F)||$35.5||1.3%||0.0%||Consumer Discretionary|
|CVS Health||(CVS)||$31.7||1.2%||2.9%||Health Care|
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz