Cash Management

Suspending Belief: More Dividends Erased

Carnival, Lee Enterprises, Asbury Automotive are latest to eliminate payouts to preserve cash in hard times.
Stephen TaubOctober 31, 2008

The dash for cash has led a raft of additional companies to suspend or slash their dividends. The latest examples: cruise-line operator Carnival Corp. and newspaper publisher Lee Enterprises Inc.

Carnival suspended the next quarter’s payout after declaring a regular quarterly dividend of 40 cents a share, payable on December 12. It cited “the highly volatile state of the financial markets” for the suspension, which it said would be continued throughout 2009, although reevaluated based on changing circumstances.

“The company’s cash flow remains strong,” says Micky Arison, Carnival chairman and CEO. “However, in light of the unusually high cost of raising new capital, continuing concerns about financial institution liquidity, and current uncertainties in the global economy, we believe that preserving cash is a prudent step which will further strengthen the company’s balance sheet and enhance our financial flexibility.”

The company says the suspension would result in annualized cash savings of about $1.3 billion, adding that the “significant liquidity” it provides will give the company flexibility to fund its 2009 capacity growth without accessing credit markets.

For Lee’s part, it said it would suspend its dividend or order to make payments on bank debt. The struggling media company added that reinstatement of the dividend, and a stock-repurchase program, will be permitted when Lee’s total leverage ratio is again less than 4.5-to-1.

Mary Junck, Lee chairman and CEO, says the suspension of the dividend, last paid as 19 cents a share, will save $34 million a year. “We regret that this additional flexibility comes at the cost of suspending our dividend,” says Junck. “While debt reduction ultimately benefits stockholders, we look forward to the time when we can reinstate an appropriate dividend.” Adds Carl Schmidt, Lee vice president, CFO, and treasurer: “Given the uncertainty of the current economic environment, we and our lenders believed certain adjustments were appropriate at the present time.”

Also, Asbury Automotive Group Inc., a small automotive retail and service company, announced it is suspending its 22.5 cent dividend as part of a wider cost-cutting effort, including reducing capital expenditures and eschewing additional acquisitions “until the financial and economic environment has improved significantly.” President and CEO Charles R. Oglesby says of the change: “We are making the difficult but necessary decisions to preserve capital, improve liquidity, and reduce costs during these exceptionally challenging times.”

Earlier in the week, CNA Financial suspended its quarterly common-stock dividend, a decision it said was made as part of parent Loews Corp.’s decision to pump $1.25 billion into CNA. The capital infusion will be through Loews’s purchase of a new series of CNA nonvoting cumulative senior preferred stock. To get the infusion, CNA agreed to suspend the dividend on existing common stock while the new preferred stock is outstanding.

Meanwhile, some companies continue to choose reducing their dividend over eliminating it altogether. Crosstex Energy Inc. cut its payout to 32 cents a share from 38 cents, and it also lowered the dividend on Crosstex Energy LP, a midstream natural-gas subsidiary, to 50 cents from 63 cents. “Over the last several weeks, the economy and the financial markets have continued to decline — at rates and to levels that could not be anticipated,” says Barry E. Davis, Crosstex chairman, president, and CEO.

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