In spite of 18 straight quarters of double-digit profit growth and estimated fourth quarter 2006 cash holdings of $608 billion, U.S. companies seemed to maintain an iron grip on their ordinary dividend payouts in 2006. According to a recent report from Standard & Poor's, only 1,969 companies, or 28.1%, out of 7,000 publicly held stocks raised dividends in 2006–only 1% more than in 2005. Instead they opted increasingly for one-time dividend payments and special dividends–which jumped 14.3% to 622 in 2006, up from 544 in 2005. "Companies are still timid [following] the decline of the market in 2000 to 2002," says Howard Silverblatt, a senior analyst at Standard & Poor's. Moreover, managements are loath to raise ordinary dividends "because there's a big penalty for cutting [them]," he says. "An 'extra' is a single event, a special situation–you do not have to repeat it. And what it does is it gives you a little bit more time to formulate your policy and see what 2007 is going to look like."

Perhaps the biggest disappointment last year, notes Silverblatt, was the dividend policy of technology companies. "We expected more [from all the companies]. But we specifically expected more from technology companies," he says. "We started 2006 with lots of talk about tech starting to pay dividends. We saw some increases, but we didn't see the increases that we expected from technology companies."

But a degree of caution may be justified. While corporate profits have enjoyed a spectacular run during the past four and half years, profit growth in 2007 is expected to be in the high single digits at best–and there are economic storm clouds gathering, with continuing questions about the future of both consumer spending and the housing market. Still, the ratio of cash to market capitalization of companies stands at 6.44%, as opposed to 2000, when the ratio stood at 2.53%. "Looking back historically," says Silverblatt, "you have to go back to 1988 to get those kinds of numbers." That ratio is especially striking, notes Silverblatt, once you factor in how inexpensive it is to borrow in the current environment in contrast to 1988, when the cost of cash was 10%. "No matter how you measure this, there's enormous liquidity sitting on the books of these companies," he says.

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