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Thursday, January 23, 2014 - 11:30
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Thursday, January 23, 2014 - 11:30

A $1.3 Trillion Opportunity Staring Investors Right In The Face

Thursday, January 23, 2014 - 11:30am


This is the amount of cash that S&P 500 companies (excluding banks and other financial institutions) are currently sitting on. As of the beginning of the third quarter in 2013, the largest U.S. companies collectively held $1.27 trillion. That's about 13.5% more than a year earlier.

Remember, this is just the 500 members of the S&P. The number also excludes the cash held by the other 9,500 public companies that don't belong to the index.

As you can see from the chart below, corporate America has never been as flush with cash as it is right now. If you converted all this money into $100 bills and stacked them up, the pile would stretch 800 miles high. And if it was spent at the rate of $250 million a year, it would take 5,100 years to exhaust the supply.

Where is this cash coming from? Well, borrowing accounts for some of it. But mostly, companies are simply generating cash faster than they are spending it.

The widening difference between cash inflows and outflows has allowed businesses to sock away $150 billion over the past twelve months. As a result, cash stockpiles have ballooned from $1.11 trillion to $1.26 trillion -- an increase of $411 million per day.

Put simply, businesses are swimming in cash, and they're long overdue for a spending binge.

With piles of cash stacked up, businesses have slowly become more generous to their stockholders. Just in the past six months, I have counted 1,030 companies that have given dividend increases that will put an extra $29.5 billion in shareholders' pockets annually. And there has been even more spent on stock buybacks.

Combined, companies committed $164 billion toward these two shareholder-friendly activities last quarter. That's enough money to give every man, woman and child in America a check for $520.

Yet these record distributions haven't put a dent in corporate cash balances -- they're still building by the day.

While some companies will use some of their cash hoards for things like hiring and capital spending in order to expand their business, I'm interested in the ones that will really open the floodgates to investors.

I'm convinced that the time has come to really open the spigot. Companies are recognizing that shareholders are losing patience years after the recession has ended and need to be rewarded for holding onto their stocks.

And I'm willing to bet a sizeable portion of that record $1.3 trillion in Corporate America's checking account will go toward not only dividend increases, but also share buybacks and debt reduction.

It's an opportunity for investors like no other.

Readers of my High-Yield Investing advisory have followed my research on quality stocks that pay dividend yields of 6%, 8%, 10% or higher.

But the conditions right now present an opportunity to collect wealth well beyond dividend yields alone.

Don't get me wrong, getting paid in dividend checks is a great way to build wealth, but it's not the only way. Investors often overlook the two other ways companies can actively return money to shareholders: stock buybacks and debt reduction.

When factored in together, dividends, share buybacks and debt reduction provide a more comprehensive view of the ways companies return money to shareholders.

There's a term we use at StreetAuthority to measure this three-part wealth transfer -- we call it "Total Yield." Just as dividend yield measures the wealth you get from dividends, "Total Yield" measures the wealth you get from a company's dividends, share buybacks and debt reductions.

If history is any guide, Total Yield should outperform any and all "dividend-only" strategies over time.

In fact, academic research going all the way back to 1982 proves it. $100,000 invested in the S&P 500 back in 1982 would have been worth $2.3 million by the end of 2011. But the same $100,000 invested using this new Total Yield strategy would have been worth $6.7 million.

Simply put, investors who are serious about earning the maximum amount of wealth from Corporate America's $1.3 trillion cash hoard should be following a "Total Yield" strategy by investing in companies that are rewarding shareholders with the market's most aggressive dividend raises, share buyback programs and debt reduction.

My prediction: You're going to be hearing a lot more about this idea soon. It's already making waves in Wall Street circles, thanks to a 37-year-old rising star, Mebane Faber, who's pioneered much of the breakthrough research in this area. Based on backtested results published in academic studies from his new book, this breakthrough strategy has beaten the S&P over the past 30 years -- through both good markets and bad. It also outperformed members of the S&P with the highest dividend yields.

In the coming days, we'll be releasing an exclusive interview I did with Meb, where we talk about his ideas and how investors can profit from using a Total Yield strategy. But in the meantime, my staff and I recently put together a free guide for investors -- "Your Step-By-Step Profit Guide To Total Yield Investing" -- which will help you understand how to find companies with the best "Total Yields" on the market. 

You'll also get the names and ticker symbols of the top five "Total-Yield" companies, which have been showering their investors with "Total Yields" of up to 12.3% -- and have posted average gains of 140% over the past year. Click here to receive your free report now.

Nathan Slaughter does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.

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