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| Tuesday, February 9, 2010 |
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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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June 9, 2008 12:01 AM ET
More companies cut their dividends last month than in any month since 2001, as financial firms are being forced to conserve their remaining capital and other firms are bracing for the U.S. economy to cool further. Nineteen companies in the S&P 500 reduced their dividend payouts in May, compared with four firms a year earlier, according to data compiled by Standard & Poor's. In October 2001, 21 companies cut their dividends on the back of a weak economy and the terrorist attacks of Sept. 11. So far this year, 73 companies have decreased their dividends—a total greater than the number of companies that had reduced payouts between 2002 and 2007. What's worse is that the damage may continue, said Howard Silverblatt, senior index analyst at S&P. “Unfortunately, we do expect more casualties.” The financial sector, the industry where the largest dividend payers typically are found, remains under pressure, with many financials trying to raise fresh capital to repair their balance sheets after the massive write-downs that began last year. Fannie Mae announced last month it would cut its quarterly payout by 29%, from 35 cents to 25 cents. “We're raising $6 billion in capital, reducing the dividend, all to build capital to make sure we get through this belly in really impregnable shape,” CEO Daniel Mudd said on a conference call with analysts. Most famously, Citigroup was forced to slash its quarterly dividend by 41% in January, from 54 cents to 32 cents. Oppenheimer analyst Meredith Whitney, among the first to predict that dividend cut, said last month she expects Citigroup will either cut its payout again or suspend it altogether, given the ongoing possibility of “seriously constrained earnings.” Citigroup will report second-quarter earnings in July. Just last week, Goldman Sachs analysts recommended that Wachovia cut its dividend another 50% after slicing it by 41% in April, writing in a note to investors that such a move “may be the right thing to do.” Difficulties are so widespread and serious that even the Federal Reserve is telling banks to take a hard look at their dividends. “In view of this uncertain outlook, additional capital injections and the consideration of dividend cuts are still warranted for some of these companies, and we have strongly encouraged supervised bank holding companies to enhance their capital positions,” Fed vice chairman Donald Kohn told the Senate Committee on Banking, Housing and Urban Affairs last week. Moreover, problems have spread to smaller and regional banks, some of which have yet to cut their dividends, said Mr. Silverblatt. A few non-financial firms also reduced their dividends in May, including telecom Sprint and home builder D.R. Horton, which slashed its quarterly dividend by 50%, from 15 cents to 7.5 cents. In a conference call with analysts, D.R. Horton CFO Bill Wheat said the company, which in May posted a net loss of $1.3 billion for its second fiscal quarter, expected the dividend to stay at that level for the next three quarters. “I think from a prudent perspective that as long as we are producing an operating loss, then it doesn't make sense to continue to pay the level of dividend that we were,” Donald Tomnitz, CEO of D.R. Horton, said on the conference call. “Our game plan is one and one only, to get back to reporting an operating profit, at which point in time we will be looking at the dividend in a totally different light.” Dividend payouts exceeded free cash flow at a total of 34 companies in the S&P 500, excluding real estate, banking and power-generation companies, according to an analysis by Bloomberg. That could signal that more companies, particularly those that can't afford their payouts, will soon be slashing or omitting dividends. Bloomberg found that existing dividend payouts would be costliest for Motorola, General Motors and the New York Times Co. Mr. Silverblatt said the situation isn't necessarily quite so grim. “So far, it has been a financial situation,” he said. “Outside of the financials, earnings are still good and cash flow is still good.” For that reason, 28% of non-financial firms in the S&P 500 have actually increased their dividend this year. One of the biggest dividend hikers last month was health-care services firm McKesson, which doubled its quarterly payout, from six cents to 12 cents. “This demonstrates our confidence in the business and the stability of our cash flow,” John Hammergren, the company's chief executive, said in a conference call with analysts.
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