Cash Management

Down with the Dividend, Up with the Cash

List of big and small companies suspending payouts grows longer, including Liz Claiborne and Progressive Corp.
Stephen TaubDecember 17, 2008

More companies are joining the ranks of those choosing to sacrifice the dividend to the gods of cash. The latest group to suspend cash payouts: Liz Claiborne Inc., Progressive Corp., FelCor Lodging Trust, Wabash National, First Federal of Northern Michigan Inc., and OceanFreight.

Liz Claiborne Inc. said its board voted to suspend the quarterly dividend indefinitely, adding that it already has paid the dividend scheduled for Dec. 15. Its stock dropped 6 percent in trading early Wednesday.

“Given what is going on in the world, and the retail sector in particular, we have made the difficult but necessary decision to suspend our dividend,” said Chairman Kay Koplovitz. “As we continue to weather this tough Holiday season, with consumer spending levels expected to continue to be very low, halting our dividend is an important way to enhance our financial flexibility.” Added CEO Bill McComb: “There is no question that we are in extraordinary times and companies across many industries are making moves to deal with the continued uncertainty around them. While there is much going on in the economy that we have no control over, we are keenly focused on controlling those things that are within our power — inventories, accounts receivable, brand and strategy execution and generating free cash flow.”

Insurance giant Progressive Corp. said several days ago that it would not pay a dividend in 2008 under its variable dividend policy. Under the policy, a dividend would be calculated using the company’s operating results for the full year of 2008, but a dividend would not be paid if the insurer’s after-tax comprehensive income is less than after-tax underwriting income. Its stock, however, is only down 4 percent since the announcement was made.

Among smaller companies, the real estate investment trust FelCor Lodging suspended its quarterly common dividend. The REIT, which specializes in what it calls upper upscale, all-suite hotels, said that the decision reflects the expectation that revenue per available room will continue to decline in 2009. “The $125 million market cap company said it expects to generate positive cash flow during 2009, but it does not anticipate that it will be required to pay a common dividend to maintain its REIT status in 2009,” it stressed. By suspending the dividend, the company calculated it will preserve about $48 million of liquidity through 2009. Its stock, however, was knocked down by more than 8 percent in early Wednesday trading after the announcement was made the prior evening.

Trailer maker Wabash National said it will suspend its dividend effective immediately, citing the impact of continued weak economic conditions and the uncertainty regarding the timing of a recovery. Richard J. Giromini, president and CEO of the $122 million market cap company, said the suspension of the dividend payments will save about $5.5 million annually.

First Federal of Northern Michigan, a small Alpena, Mich.-based bank suspended its dividend, citing the impact of continued weak economic conditions and the uncertainty regarding the timing of a recovery.

OceanFreight, a small operator of drybulk and tanker vessels, suspended future cash dividend payments in order to preserve capital and “potentially capitalize on market opportunities as they may arise.”

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