Public Companies Giving Out Cash Like They're Oprah on a Coke Binge

For all the talk about the recession, one segment of the economy is booming. The corporate world is flush with cash, and the proof is in the dividend pudding. Take a look at the news wire the last few days. It seems like everybody and their grandmother is handing out new dividends, increasing their dividends, or flat-out repurchasing stock. It's like Oprah Winfrey got bored with daytime tv and retired to manage the global financial world. Consider a few of the companies that have handed out dividend increases or announced stock buybacks, just in the past few days.

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The thing about dividends is that they, ideally, are a balancing act. Put the dividend too high and you leave yourself cash-poor and carrying extra debt weight. Put it too low and you won't get the desired effect. What effect? A higher stock price. Think about it. What is one thing investors look at when considering a stock purchase? Dividends. Increasing dividends is a way to get more people interested in buying the stock. More people interested in buying a stock leads to an increase in price for the stock. Stock price goes up and who benefits? The CEO and Board of Directors who own significant chunks of shares...the same people who voted for the dividend share. Oddly enough, this short term gain may come at a lost opportunity for the company. Dividends paid out reduce the amount of cash available for further investments in the company, funding new projects. They can drive the company to grow less than it otherwise would, all while driving up (temporarily) the stock price for current investors. And they say humans aren't short-sighted and greedy!