Canadian companies have announced big dividend increases this year
“Companies are swimming in cash,” said Barry Schwartz, vice president and portfolio manager at Baskin Financial Services. “We’ve got a lot of mature companies in Canada that are unsure of their next steps, so instead of blowing it on bad acquisitions or doing dumb things, they pay it back to shareholders and they’ll get rewarded with a higher stock price..." Tim Hortons, the Canadian coffee shop chain, is “not going to open 3,000 more stores in Canada. So they are sitting in a lot of cash. Balance sheets are very strong, companies are cash flush, and they are cash-compounding machines,” Mr. Schwartz said.
Bank of Canada Governor Mark Carney took Canadian companies to task last year for sitting on large amounts of cash, saying they should invest this “dead money” or return it to shareholders. For now at least, many are choosing the second path. Cash-rich companies don’t trust the economy.
With economic uncertainty spread from Europe to the United States to China, companies are simply not confident enough to expand or invest. The rush to increase dividends is also underway in the United States, where the amount paid out in dividends is at a record.
“If the world economy starts to grow again, then I think some of this surplus cash will be used for expansion – new plant and equipment – that sort of thing,” John Kinsey, portfolio manager at Caldwell Securities Ltd., said. “But as long as we’re in this fix we’re in, the trend will be to err on side of conservative and return the money to shareholders.”
“Companies are swimming in cash,” said Barry Schwartz, vice president and portfolio manager at Baskin Financial Services. “We’ve got a lot of mature companies in Canada that are unsure of their next steps, so instead of blowing it on bad acquisitions or doing dumb things, they pay it back to shareholders and they’ll get rewarded with a higher stock price..." Tim Hortons, the Canadian coffee shop chain, is “not going to open 3,000 more stores in Canada. So they are sitting in a lot of cash. Balance sheets are very strong, companies are cash flush, and they are cash-compounding machines,” Mr. Schwartz said.
Bank of Canada Governor Mark Carney took Canadian companies to task last year for sitting on large amounts of cash, saying they should invest this “dead money” or return it to shareholders. For now at least, many are choosing the second path. Cash-rich companies don’t trust the economy.
With economic uncertainty spread from Europe to the United States to China, companies are simply not confident enough to expand or invest. The rush to increase dividends is also underway in the United States, where the amount paid out in dividends is at a record.
“If the world economy starts to grow again, then I think some of this surplus cash will be used for expansion – new plant and equipment – that sort of thing,” John Kinsey, portfolio manager at Caldwell Securities Ltd., said. “But as long as we’re in this fix we’re in, the trend will be to err on side of conservative and return the money to shareholders.”
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