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2020 VISION: Time to Take Stock

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CORPORATE BALANCE SHEETS SHOW STRENGTH: Will cash on corporate balance sheets fuel the next expansion?

Corporate Cash Near All-Time High

S&P 500 Companies' Total Cash as a Percentage of Total Assets¹

Corporate Cash Near All-Time High This chart is for illustrative purposes only and does not reflect the performance of any Franklin, Templeton or Mutual Series fund. Past performance does not guarantee future results.
During the recent financial crisis, many companies cut expenses and strengthened their balance sheets. As a result, corporate cash (as a percentage of total assets) is currently near all-time highs.

Payout Potential Appears Strong

S&P 500 Index Dividend Payout Ratio²

Payout Potential Appears Strong This chart is for illustrative purposes only and does not reflect the performance of any Franklin, Templeton or Mutual Series fund. Past performance does not guarantee future results.
The "dividend payout ratio" is the percentage of a company's earnings paid to shareholders as dividends. For the companies in the S&P 500 Index, the 30-year average dividend payout ratio is 50% for the period ended 6/30/2013. At the end of the second quarter of 2013, the payout ratio was 40%—well below the long-term average.

A CATALYST FOR DIVIDENDS AND THE ECONOMY?

At some point, companies will need to start spending that cash, whether through mergers and acquisitions, research and development, issuing new dividends, or increasing existing dividends. We're not predicting how the cash will be used, but we're optimistic about what all this corporate cash could mean to the economy and to investors who have some exposure to equities in their portfolios.
 

What's the opportunity for investors? The best way to capitalize on the situation with corporate cash will depend on the details that make you a unique investor. Give your advisor a call to discuss whether it makes sense to add some exposure to equities.

  1. Step

    For those still not sure about the stock market.

  2. Walk

    For those who are nervous about timing their re-entry.

  3. Sprint

    And for those ready to "sprint" back into the stock market, there may be some attractive opportunities.

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    A brief overview of 2020 Vision: Time to Take Stock

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1. Source: Ned Davis Research Group, Inc. Based on historical data since 1977. The historical average cash level for 3/3/1977 - 6/30/2013 was 9.73%.

2. Source: Compustat via FactSet. © 2013 FactSet Research Systems Inc., all rights reserved. The information contained herein: (1) is proprietary to FactSet Research Systems Inc. and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither FactSet Research Systems Inc. nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Indexes are unmanaged, and one cannot invest directly in an index.


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