Wednesday, December 3, 2008

Are Dividend Investors betting that the worst is over?

Last week was pretty weak in terms of major dividend cuts. The one notable sector where many high yield stocks were located, the tankers, keeps the wires busy with negative dividend news.
Frontline (FRO) declared a dividend payment of $0.50/share for the quarter, significantly down from the prior quarter’s payment of $3/share. This is the lowest dividend payment since March 2003. The current yield is still pretty decent at 6.77%. Investors didn’t like the dividend cut, sending the stock 10.50% lower on Friday.

Pulte Homes (PHM) announced on November 24 that it will discontinue its dividend payments for 2009 citing that this action is in line with the Company's objective of conserving cash as it continues to navigate through a very difficult business environment. The market liked the news, sending the stock over 21% higher by the end of the week.

CapLease, Inc.(LSE) announced November 26 that ts Board intends to reduce the Company's annual dividend beginning in 2009 in order to retain cash flow to further reduce leverage through accretive debt repurchases, strengthen the balance sheet and enhance long-term stockholder value. Investors pushed the stock down 8% on the day of the announcement. LSE did manage to bounce back however by 17% from its lows. The company projects that it will be paying out a quarterly dividend of 0.05/share in 2009 versus the current payment of 0.20/share.

Despite the negative dividend news, which are typically bearish for stocks, investors seem to be ignoring the cuts, and focusing on what’s next. Typically when investors stop paying attention to negative dividend news, it’s time to load up and enjoy the start of a new bull market.

Full Disclosure: None

Relevant Articles:

- When to sell your dividend stocks? Part 2
- When to sell your dividend stocks?
- Why should companies pay out dividends?
- Markets keep under reacting to dividend cuts

1 comment:

  1. I would still keep my finger cross for the moment and concentrate on the core businesses viability of the stocks, and not the prices or dividend payout from these stocks yet ... Still unclear whether are these signals "year end dressing" by institution investors.

    Ren

    ReplyDelete

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