by Marc Bastow | June 27, 2013 2:50 am
Generally speaking, the only worse words for shareholders than “bankruptcy” are “dividend cut.” When a company slashes its payout, it’s not necessarily a death knell, but it’s almost always an indication of a serious problem of some sort — usually centering around cash.
Just look at the banking industry, which saw dividend cuts and suspensions en masse during the financial crisis, with Bank of America (BAC) and Wells Fargo (WFC) among big financials that had to take a big ax to their payouts in 2009 (and only the latter’s dividend has recovered since then). In the auto sector, Ford (F) had to stop paying dividends altogether by 2007, and didn’t resume payouts until last year.
Still, in all three cases, the companies have survived and bounced back from their low, low points.
What will happen to the following five companies still remains to be seen, but for now, they all share a common bond in that they’ve either cut back their dividends or suspended them altogether during the first half of 2013:
Dividend Change: -25%
Back in February, integrated communications company CenturyLink (CTL) cut its quarterly dividend from 72.5 cents per share to 54 cents in conjunction with weak fiscal fourth-quarter results and the announcement of the company’s expectation that its debt would be downgraded to “junk.” The company said it was reducing its payout to front-run the 2015 expiration of tax credits related to the acquisitions of Qwest Communications (CTQ) and Embarq.
The only decent piece of news out of that mess: a $2 billion stock repurchase program, also expected to be completed before 2015.
Investors immediately hit CTL shares, and while they’ve recovered somewhat since February, they’re still 15% in the red year-to-date. More recently, CenturyLink said in May that it still expected revenues to decline between 0.5% and 1.5%, helping to keep its shares on the ground.
Dividend Change: -41%
Midwest energy provider Exelon (EXC) also cut its dividend back in February, from 52.5 cents per share per quarter to 31 cents with a clear desire to save money.
While EXC certainly accomplished the near-term task, the long-term picture is still very muddy. Exelon was downgraded by Deutsche Bank in May — including a $34 price target which it since has aggressively broken below — and its most recent financial results included gross margins that not only got a lot uglier year-over-year, but rank as the industry’s worst.
Meanwhile, EXC stock — which actually improved by almost 20% at its 2013 peak in late April — is now back at roughly flat since the dividend-cut announcement and is underperforming the broader market at just +4% year-to-date.
Dividend Change: -50%
Perhaps the only thing keeping new investors in Pitney Bowes (PBI) stock amid years of decline was a dividend yield that kept getting juicier. However, some of the air came out of those sails back in late April with a 50% cut to the payout, from 37.5 cents per share per quarter to 18.75 cents, that accompanied a pretty lackluster first-quarter report.
While Pitney Bowes’ stock actually remains up 40% year-to-date, PBI is down 6% since declaring its dividend cut. Now, investors get to wait for Q2 numbers and hope for better news.
Dividend Change: -76%
It has been just a dismal half-year for Cliffs Natural Resources (CLF).
Not that Cliffs shares were having a rousing year to begin with, but they really fell off a … er, ledge … following the Feb. 13 announcement that it was slashing its payout and executing a secondary stock offering amid serious financial struggles that included a $1.6 billion loss in its fiscal fourth quarter. CLF stock has fallen 55% since then, and at -60% total for the past six months, it stands as the S&P 500’s loss leader for the first half.
Unless iron ore or coal prices go up dramatically in the next six months, don’t expect too much of a rebound for CLF, nor a significant uptick in its dividend.
Dividend Change: Annual Dividend Suspended
In January, Finnish tech firm Nokia (NOK) announced that it would completely suspend its dividend for the first time since 1989, owing to a desire to save the 700 million euros, or roughly $1 billion, in cash for its attempted comeback.
That cutback comes alongside other measures of austerity, such as selling off assets, closing down research & development facilities, and cutting 20,000 jobs.
NOK shares are off more than 17% since that announcement, killing off an early-January rally and a whole lot more. And the company’s performance in the most recent quarter didn’t give investors much hope for a quick return to dividend payments.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.
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