Cash Management

More Companies Find Cash in Dividend Cuts

AMB Property, Royal Caribbean Cruises are among the latest.
Stephen TaubNovember 19, 2008

The pressure for cash, along with general financial pressures, are forcing a growing number of companies to eliminate or drastically pare their dividends.

In one recent example, struggling real-estate developer AMB Property said it suspended the fourth quarter 2008 payout, noting that it had already met its 2008 dividend distribution requirement. AMB also cut its 2009 dividend rate to $1.12 per share from a current $2.08. It said that the reduction would allow the company to retain $53 million of cash in the fourth quarter of 2008, and an additional $98 million over the course of 2009.

“AMB’s priorities are: first, our balance sheet; second, controlling expenses; and third, managing the business for the long term,” said Hamid R. Moghadam, AMB’s chairman and CEO. “We believe we are well-positioned to address all of our financial commitments.”

Royal Caribbean Cruises said it would discontinue its dividend on common, figuring to save $125 million a year from the action. “We recognize our dividend is important to many of our shareholders,” said Richard D. Fain, chairman and CEO. “However, the best way to reward all of our shareholders is to continue to position the company for future earnings growth and enhance our liquidity during this period of heightened economic and financial market volatility.”

Earlier this month Genworth suspended its dividend, asserting it would generate about $175 million per year in available capital that way. And the Wall Street Journal calculated that 36 companies that comprise the Standard & Poor’s 500-stock index have cut or suspended dividends 46 times this year, removing $33.3 billion from investors.

Financial companies alone took 37 individual actions that accounted for $30.8 billion in cash savings. Last year, financial firms took a total of five actions, and in each of the three previous years they took between one and three actions in each of the years, according to The Journal, citing data from Standard & Poor’s.

Dividends are not being raised as frequently either. According to the Journal, 202 S&P 500 companies have initiated or raised dividends 218 times this year. In 2007, there were 298 dividend increases or initiations among S&P 500 companies and just 12 reductions or suspensions.

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