Nokia: Now That Blood Has Been Spilt …

by Marc Bastow | January 25, 2013 8:58 am

Well, this is no good.

Finnish device maker Nokia (NYSE:NOK[1]) dropped a bomb on its income-minded investors Thursday by announcing it would suspend its annual dividend[2] beginning with its fiscal 2012 payout (that would have been paid out in spring of this year). The suspension marks the first time since 1989 that Nokia shareholders will go without a dividend.

What makes the timing a little headscratching is the announcement came after Nokia reported its first profit in six quarters. Earnings came to $286 million, built on solid gross margins in its smart-devices business of 18% (compared to estimates of 11.7%). Plus, the company sits on a mountain of cash — $5.8 billion, according to analysts at[3] SEB Enskilda.

Even when it lost a ton last year ($4.14 billion), Nokia still paid out nearly $1 billion in dividends. So why the drastic measure? According the Nokia’s press release[4]:

“To ensure strategic flexibility, the Board proposes that no dividend payment will be made for 2012. Nokia’s fourth quarter 2012 financial performance combined with this dividend proposal further solidifies the company’s strong liquidity position.”

OK. Prudent reasoning. Still, not enough to assuage the fears of investors, who drove NOK shares down more than 8% in Thursday trading.

Let’s face it: Dividend cuts (or worse: outright suspensions, such as Nokia’s) are either a sign of newfound seriousness in cost-cutting while improving the business … or a sign of desperation, with the company essentially using the cash as life support. Regardless, investors look to those dividends as a buffer from a bad year (or years) of lackluster stock appreciation. Take away that guaranteed cash, and you understandably have a lot of people heading to the hills.

In Nokia’s case, investors watched shares plunge 18% as the company sunk from slowing earnings to actual profit declines.


To be fair, investors in it for the dividend have been standing on thin ice for some time. Free cash flow has been heading in the same direction, and this move had been rumored for many months.


With Nokia hitching its star to Microsoft’s (NASDAQ:MSFT[7]) Windows 8 platform for its Lumia mobile lineup, perhaps it’s not a bad time to hold off on payouts — while success could mean a return to dividends, in the event of failure … Nokia will need all the spare cash it can muster.

Which of course begs the question: Will Nokia succeed?

Tom Taulli provides a pretty strong case to believe the comeback is for real[8] based on positive momentum in sales for the Lumia[9] lineup, particularly in China and Europe. Nokia’s relationship with Microsoft might also be key, with its marketing muscle (and cash) behind the product and sales efforts. Though it should be pointed out that MSFT is at least considering a backup plan[10]. And, Nokia might be flipping to the losing end on its Windows royalties[11].

The Motley Fool chimes in with a very similar call[12], highlighting Nokia’s Q4 sales, which were 51% improved quarter-over-quarter, and the belief that China Mobile (NYSE:CHL[13]) will subsidize Lumia 920T phones in China — a rapidly growing market, but one that still generally can’t afford unsubsidized Apple (NASDAQ:AAPL[14]) iPhones, which can run as high as $750.

So there’s a strong case that, by raising cash through the elimination of its dividend — as well as selling its headquarters building[15] — Nokia is merely exercising extreme fiscal discipline, not telegraphing any lack of confidence in its turnaround prospects.

Another reason for hope: While a dividend suspension sure isn’t great, it’s not the automatic kiss of death for a stock, either. Several big-name companies held out on their payouts last year, and while all enjoyed the same ugly fate (uglier, actually) than Nokia, what happened after the initial blood-letting was a pretty mixed bag.

Here’s a look at how those companies fared on the first day of trading after the announcement, how they’ve traded since, and the total hit to investors:

Company Ticker Date Susp. was
JCPenney JCP 5/15/12 -20% -31% -45%
RadioShack RSH 7/25/12 -29% -10% -36%
SuperValu SVU 7/11/12 -49% +31% -33%

While all of the stocks have taken massive haircuts, SuperValu actually has rebounded … albeit on buyout speculation and sales of some of its chains. NOK might find itself in a similar situation, recovering some of its ground through patent sales, buyout rumors or other means. But it also could happen amid Lumia becoming a viable option in the mobile world — and if you’re going to stick with/buy into Lumia, it should be on that hope, not something even more speculative.

If you’re still sitting around staring at the blood on the floor, and still have Nokia in your pocket, I think you’d be better off sticking around a little longer, because you’ll probably recoup at least some of your losses.

But at this point, no one would blame you from chalking this up as a bad investment and walking away.

Marc Bastow is an Assistant Editor at As of this writing he was long MSFT.

  1. NOK:
  2. suspend its annual dividend:
  3. according to analysts at:
  4. Nokia’s press release:
  5. [Image]:
  6. [Image]:
  7. MSFT:
  8. comeback is for real:
  9. momentum in sales for the Lumia:
  10. at least considering a backup plan:
  11. on its Windows royalties:
  12. a very similar call:
  13. CHL:
  14. AAPL:
  15. selling its headquarters building:

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