Nice piece from Credit Suisse and Mauboussin on what companies do with their money.
Quotes then downloads:
-Corporate cash balances are building because Corporate America’s return on investment is high and its reinvestment rate is modest. The issue of disbursing cash to shareholders is a crucial and timely issue in determining shareholder value.
-Share buybacks and dividends are two methods to return cash to shareholders. Executives view the two very differently and are often unsure of the best way to proceed. Superficial media coverage and wide-ranging input from investors drives this confusion.
-This report answers frequently asked questions. This format allows us to cover the pertinent issues as well as address a number of canards that persist with regard to these topics.
-A company should retain its earnings if it can earn a rate of return that is above the cost of capital. But if shareholders can earn a higher rate of return on capital than the company can, the company should disburse the cash.
Disbursing Cash to Shareholders