Daily Dividend Dust-Up: GE Cuts 70%, Citi Nixes Payout
Posted by Tiernan Ray
It was a catostrophic day for those looking to stocks for income. Among those companies not cutting, but that may yet cut, Wells Fargo (WFC) today said it would suspend its bonuses for its chairman and for its CEO. Could the dividend be the next cost-saving measure? And struggling insurer American International Group (AIG), which is in talks with the government about a range of bailout options, could be forced to cut or suspend its dividend as part of a restructuring effort. AIG paid 22 cents per share in the third quarter of last year, and 20 cents in each of the preceding 4 quarters, and has steadily increased its dividend over the years.
The biggest dividend news today, of course, was General Electric (GE)’s disclosure that it will cut its dividend by nearly 70%, from 31 cents per share per quarter to just 10 cents in order to save $9 billion. Barron’s readers in an earlier post were mad as heck, most suggesting they will dump their shares of GE, while a smaller group argued that preserving cash is an understandable if unfortunate strategic decision. The net affect on GE’s credit rating today was not huge. Briefing.com notes that Moody’s analyst Richard Lane said the cut addressed some concerns Moody’s has had about GE’s ability to service its debt. However, “Moody’s is continuing its review of the ratings for possible downgrade.” Standard & Poor’s debt rating analysts were similarly unmoved: “We still intend to reexamine our credit opinions if, for example, deterioration in global economic conditions and GE’s industrial businesses becomes more severe than we currently expect.” GE shares today fell 59 cents, or 6.5%, to $8.51.
With the announcement today that Citigroup (C) will receive a massive infusion of capital from the U.S. government and public and private investors, the company announced it would suspend its quarterly dividend. Citi declared a 1-penny-per-share-per-quarter dividend back in January, and it last paid a 16-cent dividend back in September. That was down from a 32-cent dividend in the first two quarters of the year, and down from 54 cents per quarter back in 2007. Citi shares fell 96 cents, or 39%, today, to $1.50.
UBS Securities analysts said it’s possible Alcoa (AA) will have to cut its dividend, given weakness in the aluminum market. Alcoa has paid a 17-cent-per-share-per-quarter dividend for the last two years, and the dividend has steadily risen since 2000. Alcoa CEO Klaus Kleinfeld’s most recent comments on the dividend were during the company’s Jan. 12 conference call regarding Q4 earnings. Kleinfeld was terse when asked about cutting the dividend, or about borrowing money to pay it, saying only, “You have seen the financial structure of our Company and as I said, I mean, we have been paying a dividend for 60 years. Alcoa has managed through many downturns and that’s really all I want to say right now.” Alcoa shares today fell 28 cents, or 4.3%, to $6.23.
$1 billion (market cap) containerboard package maker Package Corporation of America (PKG) today said it would cut its dividend by 50%, from 30 cents per share per quarter to 15 cents, a week after the company missed analysts’ revenue estimate for Q4, as sales declined 6%. In a note today to clients downgrading the stock from “Buy” to “Hold,” analyst Mark Wilde called the cut “a bit surprising … PCA has repeatedly argued that prior dividend increases had always been carefully considered from a sustainability standpoint. In other words, could the dividend be sustained across the [economic] cycle?” But containerboard prices are headed lower, and demand is weak, possibly getting weaker. Plus, PCA’s cost advantage over competitors, based on the cost of wastepaper, is going down, reducing the company’s edge. PCA stock fell $1.96 today, or 15.6%, to $10 |
