I'm sure everyone heard the shot around the world with Bank of America (BAC) cutting its dividend in half. Although I think it is very prudent of the bank to preserve capital in the current environment, is the the start of dividend cuts at other companies as well?
Some other dividend news, Hartford Financial also cut its dividend after announcing it will receive a $2.5 billion investment from Allianz, the German financial services giant. And General Growth Properties (GGP) has announced they will discontinue their dividend payments.
We will have to see how the stock market shakes out over the next few months to see if a trend emerges on dividend stocks.
Here are the highlights of the BAC dividend cut:
“These are the most difficult times for financial institutions that I have experienced in my 39 years in banking,” said Ken Lewis, BofA’s (BAC) chairman and CEO. “We believe it is prudent to raise capital to very substantial levels in this uncertain environment.”Disclosure: The Div Guy owns shares of BAC at the time of this post.
The bank is moving aggressively to raise its capital base as it watches its crosstown rival Wachovia implode. Citigroup (C) and Wells Fargo (WFC) are fighting over troubled Wachovia.
Bank of America, considered to be one of the nation’s healthiest banks, reported a third-quarter profit of $1.18 billion, down from a profit of $3.7 billion a year ago. That works out to 15 cents a share for the most recent quarter, compared with 82 cents a share a year ago in the same period.
The quarterly dividend will be scaled back to 32 cents per share from 64 cents. CEO Ken Lewis signaled a dividend cut was coming when he told CNBC, shortly after announcing its purchase of Merrill Lynch (NYSE:MER) that everything — including the dividend — was on the table.
The lower dividend payout will be paid the day after Christmas, hitting shareholders like a lump of coal in their stockings.
But the dividend cut will keep $1.4 billion in the company’s coffers each quarter.
The Charlotte, N.C., bank also said it plans to raise $10 billion in a common stock offering.
BofA is preparing for darker days ahead as the economic slowdown boosts credit losses.
“We believe that achieving higher capital levels today will position our company to provide credit to those consumers and businesses that are attracted to our strength and stability,” Lewis said.
:(
Turn that frown upside down MG...it could have been worse.
Put it into perspective. Instead of cutting their dividend 3 times like Citi, BofA cut once by only 50% :)!!!
I almost feel like management should be held accountable if they knew months ago that they would have to cut the dividend and blatently say they didn't see any need to. This with about all the big banks. Wachovia comes to mind and others. Seems like they could have lead some people on. Guess there isn't much to do other than ask some to resign.
It's like the world was collapsing on them and "our dividend is great, just fine." : )
Mark,
I think the banks were hoping the economy would turn around more quickly and they would not have to cut dividends. I don't think most banks tried to mislead investors.