Corporations need to boost dividends to save the Canadian economy
It’s no secret that Canadian companies are sitting on record amounts of cash, a byproduct of conservative management practices that emerged following the financial crisis of 2008.
That huge cash pile could also be a savior for the Canadian economy — if only it were put to use.
A new report from David Madani, Canada economist for Capital Economics, says that even if a fraction of Canadian companies used the cash to boost dividends, there would be a significant increase in consumption in Canada.
Mr. Madani said that if 5% of the current assets held by Canada’s non-financial companies were paid out by companies today, personal disposable income in Canada would grow by 2.5%. That would be enough to boost consumption in Canada (provided all of it was spent) by 1%.
Increased dividends make sense given the massive cash pile corporations have at the moment, and their hesitance to use it. Non-financial companies in Canada have seen the total amount of cash they hold grow from $370-billion in mid-2009 to $562-billion at the start of 2012 (financial firms are not included in these figures because they typically sit on large cash piles anyway). Cash holdings have risen to a record 13.2% of total assets, from 10.3% in mid-2009.
Mr. Madani does point out there are plenty of other useful things companies can do with that money. They can fund new investments, mergers and acquisitions or do share repurchases. Unfortunately, they’ve been conservative with these things as well.
So if they’re not going to help boost economic activity by engaging in the above, circulating the cash to consumers is the next logical step, says Mr. Madani.
Corporations need to boost dividends to save the Canadian economy | Trading Desk | Investing | Financial Post
It’s no secret that Canadian companies are sitting on record amounts of cash, a byproduct of conservative management practices that emerged following the financial crisis of 2008.
That huge cash pile could also be a savior for the Canadian economy — if only it were put to use.
A new report from David Madani, Canada economist for Capital Economics, says that even if a fraction of Canadian companies used the cash to boost dividends, there would be a significant increase in consumption in Canada.
Mr. Madani said that if 5% of the current assets held by Canada’s non-financial companies were paid out by companies today, personal disposable income in Canada would grow by 2.5%. That would be enough to boost consumption in Canada (provided all of it was spent) by 1%.
Increased dividends make sense given the massive cash pile corporations have at the moment, and their hesitance to use it. Non-financial companies in Canada have seen the total amount of cash they hold grow from $370-billion in mid-2009 to $562-billion at the start of 2012 (financial firms are not included in these figures because they typically sit on large cash piles anyway). Cash holdings have risen to a record 13.2% of total assets, from 10.3% in mid-2009.
Mr. Madani does point out there are plenty of other useful things companies can do with that money. They can fund new investments, mergers and acquisitions or do share repurchases. Unfortunately, they’ve been conservative with these things as well.
So if they’re not going to help boost economic activity by engaging in the above, circulating the cash to consumers is the next logical step, says Mr. Madani.
Corporations need to boost dividends to save the Canadian economy | Trading Desk | Investing | Financial Post
