Earnings grew the fastest following years in which companies’ dividend-payout ratios were the highest, according to an analysis of earnings growth over 130 years.
Apple’s cash position is plunging, and that’s positive for both the business and the company’s shareholders.
Why would too much cash be a bad thing? Jensen theorized that it encourages corporate managers to engage in foolish behaviors. Jensen argued that shareholders should try to “motivate managers to disgorge the cash rather than investing it at below the cost of capital or wasting it on organization inefficiencies.”
In an interview, Arnott said he believes the conclusions he and Asness reached two decades ago are still valid. He therefore considers Apple’s shrinking cash hoard to be a positive for the company’s future prospects. The bottom line? Plausible as the narrative may be that shrinking cash levels are a bad omen, they in fact appear to be a positive development. The broader investment implication is to dig below the surface when presented with such narratives.
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