Corporate America is flush with cash and there are plenty of investors calling for companies to share the wealth. Daniel Peris is one, and rather than arguing for share buybacks or flashy acquisitions he has one simple request: pay out more profits in the form of dividends rather than build ridiculous cash cushions.  The non-financial companies in the S&P 500 only pay out about 30% of their profits to investors, says the author of “The Dividend Imperative “and portfolio manager of Federated Investors’ $6.9 billion Strategic Value Dividend Fund. While the financial crisis is a fresh memory, he thinks attributing the cash hoarding of the past few years to the 2008 meltdown is a red herring.  “We’ve been at the 30% level for more than 10 years,” says Peris, “this isn’t something that just cropped up.” And, he says, such a low payout isn’t just about keeping a comfortable cash cushion.  “The payout ratio is so low that a company has to screw up severely to have to cut its dividend.”  The worst offenders, he argues, are companies that are mature, organic growers with no excuse for their low payouts. In his book he identifies three: Microsoft Microsoft, Wal-Mart Stores Wal-Mart Stores and a newer entrant to the club, Comcast Comcast.  Peris doesn’t own any of the three, because he says they don’t recognize their businesses have reached a point where the risks of committing major financial resources to new growth initiatives outweigh the benefits. As such, they should be returning more of that capital to shareholders, rather than keeping it in a war chest.  “These companies are middle-aged, there are bills to pay and they’re behaving like teenagers,” he says. “They have succeeded, not failed to get to this point. Denying you’re middle-aged is when you get in trouble. I’m 48, that’s not changing.”  Comcast, for example, is on its way to cementing its full ownership of NBCUniversal – buying the rest of the joint venture from General Electric General Electric — -and has everything it needs to be an organic growth business: cable and content. Its payout ratio has averaged 22% over the last five years, puny to Peris’ eyes.  When the marginal return on investment from acquisitions risks being low, distributions to shareholders should be more substantial, Peris says. He cites Wal-Mart’s less-than-smashing global expansion and Microsoft’s mixed takeover history (aQuantive anyone?) as reasons they should be paying more than they do at present.  But what about the view held by some, particularly in the technology space, that companies have to grow or die? That a company like Microsoft would be signing its own death warrant if it couldn’t find anything better to to with its cash than pay shareholders?  “We would show up and take their shares very happily,” Peris says of those who would dump their Microsoft holdings if the company doubled its payout ratio.  And what of the man many consider tops among investors, Warren Buffett? Berkshire Hathaway has a prodigious appetite for dividend-payers in its investment portfolio, but the Oracle of Omaha himself has long refused quarterly or annual payments to shareholders and only recently repurchased stock.  Buffett, Peris argues in his book, is the exception that proves the rule. “Unless you believe your company is being run by an investor as shrewd as he is, you should insist on cash payments.”  As for who is doing it right, Peris says have a look at McDonald's McDonald's, which paid out 53% of earnings in 2012 and has averaged 48% over the last five years. “They took their payout ratio up to 50% and slowed their growth rate. We own quite a bit.”
Federated Investors' Daniel Peris says mature companies have no reason to pay out so little of their profit.