US Companies Hoarding Cash

U.S. corporate borrowers amassed the most cash relative to debt on record in the last quarter of 2009, and will probably preserve such cash for the duration of this year. This is according to a report issued by investment bank Morgan Stanley.

The report says that cash amounted to approximately 30 percent of debt in the fourth quarter, against about 25 percent in the previous quarter. The report believes that "corporates will stay conservative until they are completely sure the recovery is real."

The data is based on fourth quarter 2009 results from over 200 nonfinancial, investment-grade U.S. companies.

A positive knock-on effect of this is that corporation will have more cash to increase shareholder value once the economy exhibits more stability. Already several large companies are putting their excess cash to work. Tobacco maker Philip Morris (PM) launched a $12 billion share buyback plan, as Lowe’s (LOW) announced a $5 billion buyback. Home Depot (HD) decided to raise its quarterly dividend 5 percent for the first time since 2006.

Pepsico (PEP) launched a $15 billion share buyback two weeks ago. The company also said it will boost its annual dividend by 7 percent to $1.92, likely starting on June 30.

Interestingly, in the fourth quarter only 39% of the companies surveyed increased leverage. This was the lowest percentage since the end of 2006 and down from over 53 percent in the third quarter of 2009. The bad news is that capital and expansion spending is expected to remain subdued which will result in little if any increase in hiring. Many large capital projects have also been delayed.

Google (GOOG) is currently sitting with $25 billion cash, while rival Apple (AAPL) has the same amount. GE (GE) is sitting on a gargantuan $72 billion cash. Warren Buffett’s Berkshire Hathaway has about $30 billion in cash while Exxon Mobil (XOM) has a relatively paltry $10 billion.