A recent flurry of merger activity captured investors' imagination last week and returned their focus to the wads of cash lying around on corporate balance sheets.

Nonfinancial companies in the Standard & Poor's 500-stock index are sitting on a record $2 trillion, according to FactSet. While no one is calling for a new merger boom, many are looking for companies to spread some of that money in other ways -- namely through dividends and buybacks.

The prospect of companies parting with some of that cash is tantalizing for stock investors. They have watched helplessly this year as stocks tread water despiteimpressiveearnings and upbeat forecasts. The Dow Jones Industrial Average is down nearly 2% this year. Even a modicum of spending on mergers, buybacks or dividends could help put a floor under the market, if not do more, they reason.

J.P. Morgan Chase estimates that if cash balances among S&P 500 companies were to return to normal levels -- about 7% of assets from the current 11% -- it would result in spending of $428 billion. That almost is as much money as companies poured into share repurchases for 2008 and 2009 combined.

Buybacks are growing in popularity: the value of share repurchase programs more than tripled off last year's lows to $142.7 billion for the year so far, Thomson Reuters says, though the total hasn't yet returned to precrisis highs.

And one-third of S&P 500 companies increased their dividends this year, handing out an extra $12.7 billion after cutting them by $41 billion in the same period last year, according to S&P.

Another use of cash, of course, is to buy other companies. BHP Billiton's hostile $39 billion bid for Potash Corp. of Saskatchewan and Intel's agreement to buy McAfee are signs of growing confidence among corporate executives. But still, some investors note, the deals seen so far probably aren't heralding a new merger wave. And many executives are skewing toward conservative 'low-hanging fruit,' seeking to strengthen themselves through consolidation.

Douglas Cliggott, U.S. equity strategist with Credit Suisse, says that with all this cash on corporate balance sheets, he is expecting more buybacks and dividend increases.

'I think there is a logic both for share buybacks, and an attraction to being very competitive with fixed-income instruments here if we increase our yield,' he says.

Launching buybacks allow companies to shore up their share prices, giving a boost to per-share earnings without companies actually increasing earnings. Advocates say this could be a key to driving many stocks higher even if the economy fails to pick up steam.

And with bond yields now at historic lows, dividend-paying companies are starting to look like reasonable alternatives, some analysts say.

Credit Suisse, in a recent report to clients, listed 24 stocks that it argued were 'better than bonds' based on dividend yields that were higher than those of 10-year Treasurys. Those stocks sport an average dividend yield of 4.2%, compared with the 10-year yield of a little over 2.5%.

'Dividends make sense to people,' says Jerry Harris, president of asset management at Sterne Agee, who adds historical stock-market returns have been driven by dividends.

But there is a negative signal being sent here, too, some investors say: Companies' reluctance to channel that surplus money toward growth and expansion -- whether it be making strategic acquisitions or hiring more employees -- suggests caution still prevails.

It also reflects the amount of existing underused capacity companies have at their disposal, thanks to technological improvements and squeezing more out of employees.