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Profits are up but stocks aren’t. Now companies are loaded up with cash. My hope is that they’ll avoid bad mergers and show us some dividends.

Many companies have heeded the call. In a conference call Thursday, Tyco International Ltd. Chief Executive Edward Breen told investors that the company has spent $4.2 billion on a share-repurchase program begun last year. On Friday, General Electric Co. said that it would sell most of its insurance unit to Swiss Reinsurance Co. in a deal valued at $6.8 billion and that the proceeds would help it boost share repurchases and dividends.

I also think Cisco (CSCO) will start paying a dividend soon. I’ve had a change of mind about share repurchases. Now I’d prefer to get a dividend. Let shareholders decide for themselves.

By the estimate of Standard & Poor's market strategist Howard Silverblatt, companies in the S&P 500 spent about $245 billion on share repurchases in the first three quarters of this year, topping the record $197 billion they spent in all of 2004. Because share repurchases are outstripping share issuance, there have been meaningful reductions in total shares outstanding at some companies.

Meanwhile, dividend payouts should come in at about $200 billion this year, says Mr. Silverblatt, up from $181 billion last year.

The WSJ quotes hedge fund manager (and blogger!) Jeff Matthews on how Lexmark (LXK) wasted shareholder money on buying an overpriced stock.

Jeff Matthews of Greenwich, Conn., hedge fund Ram Partners LLC says investors' demands for stock buybacks and the like are prompting some companies to do the wrong thing. He points to Lexmark International Inc., a printer maker whose shares fell sharply early last month when it cut its earnings estimate for the third quarter.

On its earnings conference call later in the month, the company said that this year through September, it had spent $870 million buying back its shares at an average price of $68.83. Lexmark shares closed at $44.85 on Friday in New York Stock Exchange composite trading.

Part of the problem, according to Mr. Matthews, is that hedge-fund managers like himself are paid based on their portfolios' annual performance. So they tend to be short-sighted when they see a company with lots of cash and a languishing share price. "I don't think it has as much to do with what's in the long-term interest of the company as in the long-term interest of the hedge funds," he says.

Posted by edelfenbein at November 21, 2005 5:52 AM