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Companies Increasing Dividends, But Not Hiring
It is no secret that many of the biggest companies are making huge profits and sitting on excessive amounts of cash right now, while so many are still out of work. Several publicly traded companies, such as Microsoft (MSFT), Lockheed Martin (LMT), and ConAgra Foods (CAG) to name a few, have recently decided to raise their dividends. With all so many people looking for work, you would think that money would be better used to create jobs. There’s a very simple reason that these companies are putting their money into dividend increases rather than hiring.
The big economic debate as of late, has been whether to extend the Bush tax cuts, or let them expire which is what President Obama and most Democrats in Congress have indicated their intentions to be. Businesses make decisions based on their future outlook and financial projections. Since there is no certainty from this administration about what the future tax situation will be, the companies have to base their decisions on perceived tax increases.
It will be better for the company to pay the extra cash in the form of a dividend to it’s shareholders, rather than hire new employees and pay for their benefits and training. Under President Obama’s current plan, taxes will go up significantly in 2011. If he really wants to do something to fix the US economy, he should extend the Bush tax cuts for at least two more years. One may be enough to see some economic stimulation and hiring, but if he announced next week that he was extending the Bush tax cuts for two more years, we would see a massive spike in the stock market, companies would immediately begin hiring, and the unemployment rate would begin dropping rapidly.
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