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The cash is coming! Here's how to play it.

January 31, 2012: 5:00 AM ET

If company executives can't figure out how to invest their money back into their own businesses, they're going to have to return it to their shareholders. This year may finally be the year for that.

FORTUNE -- When Apple announced its latest quarterly earnings last week, the most amazing thing wasn't that it once again blew away Wall Street's expectations. This company is on a roll of unprecedented proportions, and it's almost assumed that it will exceed expectations -- the only question is by how much. What was far more profound was the revelation of the hoard of $97.6 billion in cash and marketable securities on the company's books. We've been reading for a few years now about corporate America's growing pile of idle balance sheet cash, but this is something else entirely. Apple shareholders don't really have much to complain about these days -- the stock is up 424% over the past five years, compared to a 7.4% decline in the S&P500. But come on, Cupertino. If you can't think of ways to use the money, give it back to its rightful owners. You're not a hedge fund.

Apple (AAPL), mind you, is not alone in its seeming inability to put the cash it has generated of late to work. According to a January 24 report from Goldman Sachs (GS), non-financial companies the investment bank follows have seen gross cash balances rise by 55% over the past four years, and the ratio of total cash to enterprise value rise from 6% to 10%. Much of that sits in overseas accounts as companies patiently hope for a day when Congress agrees to pass a tax holiday on foreign income. (Good luck with that.)

But here's the good news: Goldman thinks a more "shareholder friendly" moment is upon us, and that corporate executives are finally going to start doling out the money pile they've been sitting on due to their abject fear of investing in an uncertain economic climate. Companies they follow seem ready to direct a whopping 37% of their cash to dividends and share buybacks alone in the coming year, roughly 500 basis points higher than the average from 2002 to 2010.

All of this means there's some good money to be made if you know how to pick your spots.

Stock buybacks. In 2011, some $530 billion of buybacks were authorized by corporate boards, 45% higher than in 2010, and a five-fold increase from the 2009 low. While Goldman admits that buybacks are not always a reliable indicator of stock outperformance, since March 2009, stocks with new repurchase agreements have outperformed the S&P around the announcement of the buybacks. And we're not talking about small numbers, either: In 2011, Walt Disney (DIS) announced a $16 billion buyback, JPMorgan Chase (JPM) a $15 billion one, and Wal-Mart (WMT) another $15 billion. Goldman identifies a handful of companies they think might soon announce or expand repurchase programs, including eBay (EBAY), Pfizer (PFE), and Qualcomm (QCOM). They add another list of companies with big chunks of buybacks yet to be completed, including Viacom (VIA), Saks (SKS), Abercrombie & Fitch (ANF), and IAC/InterActive Corp (IACI).

Here's my favorite list, though. They compiled a list of companies for which you might consider selling put options because a buyback looks likely to support the company's shares. You pocket the price of the option, and provided the stock doesn't fall and is "put" back to you, you walk away at the option's expiry with a few bucks for pretty much doing nothing at all. No guarantees here, folks, but this is as close to a free lunch as you can get, barring some disastrous news out of a company or a collapse in the overall stock market. A few candidates: Cablevision, Halliburton, and American Eagle Outfitters.

Of course, disasters can—and do—happen. Netflix (NFLX) famously spent over $1 billion on share repurchases when its stock was flying high, leaving the company in a jam last fall that necessitated a dilutive financing at $70 a share because it had nearly run out of cash. Even in more benign circumstances, there's no guarantee that a buyback will offer any share price support in a volatile market. To its credit, Goldman points out that the long-term effect of buybacks on stock prices is mixed at best.

Dividends. While Goldman's research doesn't point to a similar surge in dividends, its analysts do see a steady level of cash being returned to shareholders by such a route—some 14% of capital allocations in 2011—equal to the average from 2002 to 2010, and above the 12% levels of 2006 to 2008, when companies still thought they had better uses for their cash than just giving it back to shareholders. And here's the thing: fixed income investments remain at pathetic yields these days -- 2.04% for 10-year Treasuries or a paltry 0.11% for one-year notes. Find yourself a nice dividend-paying stock, and you're ahead of the game already. Goldman identifies a number of companies with both attractive yields plus historical dividend growth. They include Pfizer (again!), General Electric, Coca-Cola, and Boeing. Some higher-yielding stocks that might be a bit riskier include Och-Ziff Capital Management (a 10.7% yield!), Verizon (5.2%), and Duke Energy (4.7%).

Mergers and acquisitions. The pace of cash acquisitions seems to be picking up as well. According to Capital IQ, a number of major U.S. companies opened their wallets for major M&A moves over the last 12 months, including MGM Resorts ($407 million in cash spent), Liberty Interactive ($185 million), Allscripts Healthcare ($121.5 million) and Ford Motor Company ($94 million). Not every CEO is trigger-shy, in other words, and there is big money out there waiting to be put to use.

And what of actual corporate investment—now known by its trendy political moniker, "job creation?" Fewer than half of executives polled recently by Fortune said they expect to increase their headcount in 2012. Companies allocated 38% of their cash use on capital expenditures in 2011, which is still below the long-term average of 39% and even below 2009 levels of 42%. A September 2011 study by McKinsey & Company pointed out that while large numbers of executives felt their companies were underinvesting in their business, a rise in loss aversion—weighing potential losses significantly more than equivalent gains—has taken hold across all manner of industries. In other words, they're suffering from an inability to make bold decisions. So they might as well start giving it back to shareholders.

So the news is positive, if only on the margins. And it seems as if the long night of cash hoarding might finally be coming to a close. If companies can't figure out how to invest their money or spend it on M&A, they're going to give it back to their shareholders. Now someone just needs to let the people at Apple know that in this one rare instance, they are not better or different than everyone around them. It's not their money—it's their shareholders'. If they've got no use for it, give it back.

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About This Author
Duff McDonald
Duff McDonald
Contributing Editor, Fortune

Duff McDonald is a contributing editor at Fortune. He has also written for New York, Vanity Fair, Condé Nast Portfolio, GQ, WIRED, Time, Newsweek, and others. In 2004, he was the recipient of two Canadian National Magazine Awards -- best business story (gold) and best investigative reporting (silver) -- for "Conrad's Fall" in National Post Business. Last Man Standing, his biography of Jamie Dimon, chairman and CEO of JPMorgan Chase, was published by Simon & Schuster in October 2009. He is also the co-author, with Owen Burke, of The CEO, a satire.

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