Buybacks get costly for S&P 500 CEOs burning cash

LITTLE by little, the corporate cushion is shrinking. Pressured by a year-and-a- half of weakening profits and splurges on buybacks and dividends, the once-towering piles of money at American companies have started to topple. Cash and equivalents slipped to a median US$860 million at S&P 500 Index members last quarter, touching levels not seen for three years, according to data compiled by Bloomberg.

While hardly a portent of mass insolvency, the slippage complicates the balancing act for chief executive officers trying to keep shareholders appeased while earnings drop. Spending on share repurchases, which inoculated investors from the sputtering economy for seven years, is getting harder just as the Federal Reserve weighs raising interest rates.

"Those things are going to leave a mark when lending starts to get a little more tough and companies have to rethink some of these buyback announcements and dividends," said Sameer Samana, a St Louis-based global quantitative strategist at Wells Fargo Investment Institute, which oversees US$1.8 trillion. "You're seeing that already and it's concerning."