Companies’ Cash Might Not Go to Dividends

Investors are salivating over prospects for increased dividends and share repurchases this year, thanks to U.S. corporations’ burgeoning piles of cash.

Or so they thought.

Many companies could be limited in how much money they can return to shareholders because new pension accounting rules soon to be considered may force them to horde their cash.

The Financial Accounting Standards Board is set to introduce a proposal next month for a rule that would bring companies’ pension and other post-retirement benefit obligations onto corporate balance sheets, possibly by the end of this year.

As companies face growing healthcare costs and an aging work force, post-retirement employee benefits such as retiree healthcare plans could mean cash flow numbers will appear smaller after this year. And investors who assumed that cash was coming to them in the form of dividends and share repurchases could be mistaken.

“A key question for investors is: ‘How much of the cash that would have been used to grow the business, pay a dividend, buy back stock, or pay down debt will instead go toward paying” post-employment benefits, Credit Suisse analyst David Zion wrote in a recent research note.