Sharing the Wealth

Kathy Kristof, of Kiplinger's Personal Finance Magazine, takes a look at companies sharing the wealth. Below, she highlights three blue chip firms that are buying back stock and boosting their dividends.

Steve Halpern: We're here today with Kathy Kristof of Kiplinger's Personal Finance Magazine. How are you doing Kathy?

Kathy Kristof: Great! How are you, Steve?

Steve Halpern: Very good. The November issue of Kiplinger's just hit the newsstands, and in the latest issue, you wrote an article entitled Companies That Share the Wealth. Could you explain this trend?

Kathy Kristof: Absolutely. Companies have been building up cash hordes. Honestly, ever since the debacle of 2008-2009, companies got very nervous about having enough capital, and so instead of raising dividends, a lot of them cut dividends and started hording their cash.

Now companies have more cash on their balance sheets than ever before, and the market doesn't look as tenuous, and so they're feeling much more comfortable about giving back some of that cash to shareholders in the form of dividends and share buybacks, and both of those things are obviously very good for shareholders. It just puts a little more cash in your pocket.

Steve Halpern: Now, one company you highlight is Apple (AAPL), which has attracted the attention of Carl Icahn, in part, because he wants the company to pay more cash. Could you tell us a little about that situation?

Kathy Kristof: Apple is one of the companies that we've been watching for awhile, because their free cash flow has just soared. This is largely because their products are very popular and profitable for the company, and so each and every quarter, the amount of cash that they have grows, and grows, and grows.

They started paying a dividend a year ago, but they still have about $150 billion in cash, and Carl Icahn bought a big stake in them and wants them to start, either buying back a lot more stock, or giving shareholders a lot more cash, and that is, to some degree, happening.

But I think what he really did was draw a lot of attention to the fact that this is still an excellent company, and because they stopped growing at the pace—they've got a year of kind of a stumble, where they didn't grow as fast because they didn't come up with a bunch of new products.

And people are nervous because Steve Jobs died and so this company stock has gone from $700 to under $500, and I think that makes it a tremendous bargain, and so does Icahn, by the way.

Steve Halpern: You also look at heavy equipment maker Caterpillar (CAT). What's happening there?

Kathy Kristof: CAT had a relatively bad year. They had trouble with mining revenues, and so again, their stock price got hit, but they look at what's been going on as a temporary blip, because what they've seen is that their heavy equipment—the dealers who sell their heavy equipment, have just run down their inventories.

There has not been really a decline in demand from the end customer, and so they said, well, at some point, the dealers have to refresh their inventories. We think that's going to make 2014 a better year.

Meanwhile, because the stock price is at a discount, they've been buying back their own shares and raising their dividend, and so again, it's a stock that you look at and go, to me, one of the things you look at with these stocks is you'd like the market to ring some of the risk out of the stock.

And when a stock is selling at a relative bargain price, you figure that there's upside and a lot less downside than there could be, so I think that's what CAT is showing us.

Steve Halpern: Finally, in your article, among the other companies you discuss, you do look at International Business Machines (IBM), and you note that they're spending billions to buy back their own shares. Could you tell us a little about that?

Kathy Kristof: Absolutely. IBM is a company that is in transition, and because it's such a giant company, the transition is kind of like turning around a battleship, rather than making a quick U-turn, so they've gone from being a big mainframe and computer maker to being a seller of technology services.

They're showing real growth in that, and analysts think there's a lot of potential for a company that spent so much on research and development to be one of the leaders in taking the rest of the world into a world of big data, where more and more companies are mining vast quantities of disparate data, to figure out what consumer preferences are and how to market better to consumers.

And so, they think the potential for IBM is great, and like the others, IBM itself, thinks their stock is a bargain price, so they're buying back shares and they're raising their dividend rates, so that investors, in the meantime, are getting, kind of, paid to wait.

Steve Halpern: Well, we really appreciate you joining us today and sharing some of your insights. Thank you.

Kathy Kristof: Thanks Steven.

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