“Let’s take a quick look at these stocks moving lower right now. Timber producing Weyerhauser is cutting the dividend from 25 cents to 5 cents and that stock is moving lower, about 5% today.” Fox Business Network 7/7/2009
Weyerhaeuser Company (WY), which produces lumber and other forestry products, has now founded it necessary to chop down their dividend. Their lumber is often used by home builders and with housing starts still very low, it is still a very tough time for Weyerhaeuser. The company is expected to lose somewhere around $2.36 in fiscal 2009, which makes the quarterly dividend of $.25 simply too rich to sustain. This is the second time the company has needed to slash its dividend in the last year as operating conditions have continued to deteriorate. The stock fell more than 7% during Tuesday’s trading session.
Unfortunately for income investors, Weyerhaeuser is far from an anomaly in this market with 55 dividend payers in the S&P 500 lowering their dividend so far this year and ten companies suspending them indefinitely. This move should not come as a surprise for anyone invested in Weyerhaeuser, because it just makes sense that a company loosing money would need to conserve capital wherever possible. This started me thinking about what other companies appear to be headed down the same path; paying out an outsized quarterly dividend that the business’ earnings can no longer support. Two likely candidates stand out apart from the rest:
Vornado Realty Trust (VNO)- This REIT is heavily invested in New York City and Washington D.C. commercial real estate and thus its earnings have been under pressure for quite some time already. REITs are required to pay out up to 90% of their earnings in dividends, but earnings weakness has already revealed problems. Vornado took the fairly extreme step last quarter of paying only part of its dividend in cash and part in stock. The 60% stock dividend has worked as an unrealized dividend cut as VNO is down about 15% since the dividend was paid. With vacancy rates at multiyear highs, earnings could continue to be pressured which may mean an all out dividend cut is upcoming. Also, The Wall Street Journal is reporting that Vornado is seeking more than $1 billion in private equity funding to buy distressed assets, no word on how this will effect earnings in the near term.
Windstream (WIN)- This provider of telecommunication services to rural areas has held a quarterly dividend of 25 cents for the last two-plus years, however earnings have shown signs of weakness. The stock is currently yielding a heady 12% as the stock has declined 10% year to date. In the last three quarters the company has paid out more than it has earned, and that is likely to continue for at least the next two quarter, according to consensus estimates. We think it would not be strange to see the company shave the dividend by 20% or more in order to give them some breathing room.
