Investor Red Alert- Dividends in Danger!
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Tough economic times can mean hard decisions for businesses coping with diminished revenues and shrinking margins. When faced with adversity, CEOs must sometimes choose between paying expensive dividends and cutting or outright eliminating them in order to hoard precious cash.
The standard gross profit margin for grocery stores is a scant 1%, and increased costs from middlemen can play havoc with this already slim margin. SuperValu (NYSE: SVU) suspended its dividend payment on July 11th amid falling revenue and asset values. The chain continues to give up ground to competitors Kroger, Safeway and Winn Dixie. Wal-Mart and Costco often have rock-bottom prices on a variety of grocery store items which further erodes SuperValu’s customer base. SuperValu also carries a lot of debt from its many acquisitions, high yield bonds and credit default swaps. The company reported a net loss of -$1.040 million in February 2012 versus -$1.510 million the same time period 2011. Quarterly earnings growth is projected at -44.60%. The company has paid dividends for over 60 years so the decision to suspend payment couldn’t have been easy to make. Per new CEO Wayne C. Sales, the company is looking to pay down some of its substantial debt.
Radio Shack (NYSE: RSH) opened its first store in 1921 and the way the company is going, might not survive to 2021. Second quarter 2012 saw a $21 million loss and the suspension of dividend payments. The stock has nosedived 30% this year and management doesn’t seem able to stop the free fall. CEO Julian Day is working to save a company suffering from decreasing sales and revenue and saddled with high debt. The company has seen net income drop to $72.2 million as of December 2011 from $206.1 million in December 2010. Shareholder equity was reported at $753.3 million in December 2011, representing an $89.2 million drop from the same period 2010. The company plans to use the money saved by not paying dividends to pay down corporate debt.
One of the financial world’s own suspended dividends last month. Citing disappointing second quarter earnings, TheStreet.com (NASDAQ: TST) decided to stop paying dividends, effective immediately. The company operates as a digital financial media provider and derives some of its revenue from paid subscriptions that cost $400 per year, although discounted subscriptions are available. As the economy continues to struggle, more subscribers may cancel as a cost-cutting measure which will continue to eat away at TheStreeet.com’s revenue. A net loss of -$8.184 million was reported on December 31, 2011 as compared to -$5.335 million December 31, 2012.
Two companies facing financial challenges have opted to reduce rather than outright eliminate their dividend payments. Value Line (NASDAQ: VALU), another financial data publisher, saw its net income plummet from $37.782 million as of April 29, 2011 to $6.925 million for the same period 2012. The company reduced dividends 25% from .80 to .60, and the current dividend yield is now 4.60%.
And the other: You can’t tell the housing market’s starting to recover by the way KB Homes (NYSE: KBH) decimated its dividend. The company slashed dividends 60% from .25 to .10 and has a current yield of 1.10%. KB Home’s net loss nosedived from -$69.368 million in November 2010 to -$178.768 million in November 2011.
Stockholders counting on dividend income are feeling more than a little anxious over the sudden onslaught of companies cutting or outright eliminating dividend payments. Aside from selling their stock, there’s precious little investors can do but wait and hope the company will right its financial wrongs and resume their customary dividend payouts.
kprogers has no positions in the stocks mentioned above. The Motley Fool owns shares of RadioShack and SUPERVALU INC. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
