Dividends instead of investment worrisome for economies

By Marc Castro

Jun 15, 2013 03:15 PM EDT

There is an increasing trend for companies returning their earnings to their shareholders through dividends. This is an alarming behavior because instead of expanding their businesses, it would result in greater issues for the global economy.

This refusal to invest, which is not affecting revenuew and profits in the recent years. now stands to break a historic link in business. This is also a reflection of a lack of confidence as to the future growth of the company and their products with a clear no confidence vote for sustaInable private sector driven growth.

This business practice coincides with the increasing preference by investors for income generating stocks and bonds instead of securities where revenue and profits are dependent on future economic performance. This is also a clear indication that the reliance on central bank support for economic growth is preferred by many businesses and investors.

According to Thomson Reuters data, companies throughout the world have in their coffers about US$6.7 trillion in cash and equivalents in their balance sheets. This is twice the volume from ten years ago. Of this total, two thirds are with American and European companies.

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