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Bloomberg: 'The Corporate Cushion Is Shrinking'

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Bloomberg: 'The Corporate Cushion Is Shrinking'

What happens when investor demand companies dish out more cash to pay dividends and buy back their own stock? According to Bloomberg, the answer is quite simple: "The corporate cushion is shrinking."

Bloomberg reported on Tuesday that the once "towering" pile of cash held by corporate America has "started to topple." In fact, cash and cash equivalents among S&P 500 index members fell to a median of $860 million in the last quarter, which represents a level that hasn't been seen in three years.

For example, cash fell 26 percent at Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) from a year ago and AT&T Inc. (NYSE: T) saw its cash holdings fall 66 percent.

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Granted, $860 million isn't exactly petty change, but the multi-year low does present problems for companies looking to balance the risk/rewards of appeasing shareholders at a time when earnings are falling.

Earnings before interest and taxes among S&P 500 companies was $1.1 trillion for the year ended last quarter, the lowest ever since 2011.

In addition, a continued share buyback program could be impacted by any future interest rate change implemented by the Federal Reserve.

Sameer Samana, a quantitative strategist who helps oversee nearly $2 trillion at Wells Fargo Investment Institute, told Bloomberg declining cash reserves and higher Fed rates will make it "a little more tough" and force companies to "rethink" its policies.

"You're seeing that already and it's concerning," Samana said.

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