The rising cash holdings of U.S. corporations is increasingly in the hands of a few U.S. companies, with just five tech firms having grabbed a third of it. And nearly three-quarters of cash held by non-financial U.S. companies is stashed overseas outside the long arm of Uncle Sam.
Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Cisco System (CSCO) and Oracle (ORCL) are sitting on $504 billion, or 30%, of the $1.7 trillion in cash and cash equivalents held by U.S. non-financial companies in 2015, according to an analysis released Friday by ratings agency Moody's Investors Service. That's even more cash concentration in previous years, as these five companies held 27% of cash in 2014 and 25% in 2013. Apple alone is holding more cash and investments than eight of the 10 entire industry sectors.
Corporate America's rising pile of cash is becoming increasingly important to investors as profit growth and the stock market stalls. The amount of cash held by U.S. companies rose 1.8% in 2015. Unfortunately for U.S. investors, 72% of total cash held by all non-financial U.S. companies is stockpiled outside the U.S., up from 64% in 2014 and 58% in 2013 as companies try to avoid paying U.S. tax rates.
Investors are eyeing companies' growing cash piles as potential sources of dividend increases to maintain fat returns even if stock prices continue to go nowhere. Dividends rose 4% last year to a record high of $404 billion, while companies cut back on capital spending by 3% to $885 billion. Capital spending is the cash companies put into new plants and equipment with the hopes of driving higher profits in the future.
Companies have also been pulling back from using cash to buy back their own stock. That is a maneuver that can reduce a company's number of shares outstanding and in theory should make each share more valuable. Stock buybacks, net of new stock issuance, fell 7% to $269 billion in 2015.
Apple shows the strong disconnect between big cash balances and stock returns. The company is sitting on more cash than any other, yet investors have lost $240 billion in paper profits since the stock peaked.
There's only so much companies can do with their giant wads of cash since a vast majority isn't in the U.S. U.S. non-financial companies have $1.2 trillion in cash outside the U.S., up from $1.1 trillion in 2014 and $947 billion in 2013. Moody's thinks the cash stored overseas will only grow. Some of the biggest holders of cash are also the same companies with much of their cash outside the U.S. Apple, Microsoft, Cisco, Alphabet and Oracle have $441 billion saved overseas, or 87% of their total cash.
TOP 10 MOST CASH-RICH U.S. COMPANIES
Company, symbol, Cash ($ billions*)
Apple, AAPL, $215.7
Microsoft, MSFT, $102.6
Alphabet, GOOGL, $73.1
Cisco Systems, $60.4
Oracle, ORCL, $52.3
Pfizer, PFE, $39.3
Johnson & Johnson, JNJ, $38.4
Amgen, AMGN, $31.4
Intel, INTC, $31.3
Qualcomm, QCOM, $30.6
Source: Moody's Investors Service
* as of end of 2015
Don't expect that cash to come home anytime soon, Moody's says.
"We expect that overseas cash balances will continue to grow unless tax laws are changed to encourage companies to repatriate money," the Moody's report says. "There has been little progress toward corporate tax reform that would incentivize U.S. companies to permanently repatriate funds held overseas."
TOP FIVE CASH HOARDERS PILE UP OVERSEAS*
Company, 2014 % cash offshore, 2015 % cash offshore
Apple, 88%, 93%
Microsoft, 91%, 94%
Cisco, 94%, 94%
Alphabet, 60%, 59%
Oracle, 90%, 87%
Source: Moody's Investors Service
* as of 2015