Who was hoarding cash in 2011

NEW YORK — In a year when American companies piled up record amounts of cash, the worst stocks were the savers and the best gave the money back to investors with dividends and buybacks.

Companies that hoarded cash such as CareFusion Corp., Western Digital Corp. and 18 other members of the Standard & Poor’s 500 Index lost an average 15 percent in 2011, according to data compiled by Bloomberg. The 40 that repurchased the most stock or offered the biggest dividends climbed 5.7 percent, led by DirecTV and Reynolds American Inc., the data show.

Bulls say gains in companies that returned money will help unlock almost $1 trillion of cash that chief executive officers have been hoarding for three years. Thomas Lee, the chief U.S. equity strategist at JPMorgan Chase, says distributions should increase 28 percent to $1.1 trillion into next year. Bears say dividends and buybacks will be insufficient to keep the rally going as mandated budget cuts curb growth.

“Investors are more yield-hungry than ever before,” said Jacob de Tusch-Lec, a London-based money manager at Artemis Investment Management, which oversees $17 billion. “Because of the market we are in, investors have flocked to companies that are the best in the world at what they do, generate excess cash and have a proven record of returning money.”

The S&P 500 fell 2.8 percent to 1,219.66 last week, the first decline since November. Concern that countries in Europe face defaults pushed the index down 11 percent since it reached an almost three-year high of 1,363.61 on April 29. While the index has lost 3 percent for 2011, it has swung from an 8.4 percent gain in April to a 13 percent loss in October.

Companies built reserves as stocks sank and forecasts for growth in U.S. gross domestic product next year slipped from 3.3 percent in February to as low as 2 percent in October. Cash at companies excluding banks, utilities, truckers and automakers rose to a record $998.9 billion last quarter, according to S&P.

Hoarding money hasn’t paid off in the market. A group of 20 companies that increased cash and short-term investments the most in 2010 lost 15 percent this year, according to data compiled by Bloomberg. The data excludes companies that increased buybacks or dividends in 2011 or spent the most on capital investments last year.

CareFusion boosted cash to the highest level since it was spun off in 2009 and Western Digital’s climbed for the past five quarters, data compiled by Bloomberg show. CareFusion, a medical supply company, hasn’t bought back shares or paid a dividend to public shareholders, and hasn’t announced plans to do so this year, according to data compiled by Bloomberg. The stock has fallen 6.4 percent since Dec. 31.

Western Digital, a maker of disk drives and networking products, beat profit estimates for the past two quarters and raised its quarterly revenue forecast this month. The shares, which trade at a 32 percent discount to their average price- earnings ratio in the last 10 years, declined 8.7 percent this year. MetroPCS Communications, down 34 percent in 2011, raised cash to a record level in the second quarter.

At the same time, the 20 nonfinancial S&P 500 companies that spent the most to repurchase shares last year advanced 6.3 percent. Those that had the biggest dividend increases relative to their operating cash level rose 5.1 percent, according to data compiled by Bloomberg. There are 312 nonfinancial companies in the S&P 500 that pay dividends, and all but six raised or maintained them in the past year, according to data compiled by Bloomberg.

DirecTV, the largest U.S. satellite-television provider, bought back $1.45 billion of shares in the third quarter, part of a $6 billion program announced in February. Reynolds boosted its quarterly dividend payout twice in 2011. The companies rallied 5.4 percent and 25 percent, respectively.

The S&P 500 is trading at 12.3 times estimated 2011 earnings, or 30 percent below its 10-year average price-earnings ratio, data compiled by Bloomberg show. More than 1,000 U.S. companies authorized buybacks this year, according to Birinyi Associates Inc. At $520 billion announced through last week, 2011 is on track for the third-biggest year for repurchases on record, the data show.

“Companies that are just building cash, they’re looked at as not taking any risk,” Eric Green, a Philadelphia-based fund manager at Penn Capital Management, which oversees about $6 billion, said in a telephone interview Dec. 15. “If they’re not going to expand, they might as well be paying it out.”

Another contraction may send investors back to companies that have piled up cash, according to Federated Investors.’s Lawrence Creatura. While U.S. jobless claims fell to a three- year low last week, concern European leaders are failing to stem the two-year debt crisis sent the euro to the biggest weekly decline since September.

“The question investors have to ask themselves is, what will be the state of the global economy next year?” SAID Creatura, a Rochester, N.Y.-based fund manager at Federated Investors, which oversees $350 billion. “That will define which companies you should own.”

GE, now the ninth-largest U.S. company, raised its quarterly dividend 13 percent on Dec. 9, the fourth increase in less than two years. The stock gained 3.3 percent since Chief Executive Officer Jeffrey Immelt told shareholders Dec. 13 that the company should generate $30 billion in cash to spend on acquisitions, payouts and buybacks over the next three years.

“Companies are looking at their uses of what are pretty hefty cash reserves, and they’re voting with their checkbooks that they think their shares are undervalued,” said Tom Murphy, a money manager at Columbia Management in Minneapolis, who oversees $23 billion of investment-grade credit. “They’re saying that’s the best opportunity they have.”