One reason to be optimistic about the markets going forward: Corporations are still sitting on an inordinate amount of cash, and wondering what they're going to do with all that money. According to a report by the Federal Reserve, American companies held $1.93 trillion in cash or cash equivalents, up from $1.81 trillion the prior quarter. As a percentage of total assets, that's the highest that figure has been since the 1960s.
What are they going to do with all that money? There are three outlets to look for, all of which are good for investors: share buybacks, dividends, and mergers & acquisitions.
While dividends show the most immediate profits for investors, buyback programs can be just as important. In the four years after the market bottomed out in March 2009, American companies bought more than $1 trillion in their own shares. The 100 stocks in the S&P 500 with the highest buyback ratios have returned 42 percent over the past year.
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