I've added to my position on the assumption JCP will not cut or eliminate their dividend. With the arrival of a new management team, they may in fact, cut that dividend.
Several conflicting things might be happening. The older managers with stock would (I assume) like to see their JCP stock at its max. value when they depart the company. So there is some pressure to keep the dividend - at least until then. My belief is that for a company like JCP to cut the dividend- not only does that send a very bad signal to Wall Street, but also, it tends to destroy the reason a goodly number of investors - professional and individual - had to buy and hold the stock.
On the other hand, I can see new management come in and with new ideas, require more capital (cash), and say, "Well, we're going to cut the dividend by 50% and bring it down more in line with what dividends are like in the current market. 2.5% on our stock is still very favorable compared to the 1.5% in the S&P." IMO, this would still cause JCP stock to crater-- by a lot.
Yet, management, being aware of this might also offer an offset. At the same time they announce the cut, they might announce a big stock buyback ("A better use of our cash", they might say). Of course, an announcement is not a commitment-- they don't really have to buy the stock. Another favorable thing they might say, is that they will reduce their dividend and begin to focus resources more heavily to internet related transactions. JCP has product and distribution, and they have experience as a catalog retailer. For people who might e-buy clothes, shoes, jewelry or other items that are tricky to buy sight unseen, it's comforting to know that there might be a JCP store nearby where you can exchange the product or from where you might expect quick delivery. Anyway, IMO, such a focus announcement, might mitigate the deleterious effect of also announcing the dividend cut. The stock might actually rise.
But this is all speculation on my part. All I can say is that JCP surely seems like it's hurting in their market. (And that market is unfocused IMO -- not high end, not discount-- just sorta blah -g-.) But they were hurting in '96 when I bought @ mid 40's and the stock made it above 70. JCP is hurting worse now though, and with an increasing debt burden I think. Still, I've bought more, and I'm betting I might see a doubling from the current price within a couple of years.
Paul Senior |
