CBS has made a big deal about its dividend. Just three months ago, Chief Executive Les Moonves made clear his commitment to the quarterly payout to shareholders, who, by the way, have seen the stock fall nearly 75 percent in the last 12 months. Yep, 75 percent.
“The dividend is front and center in our strategy to return value to our shareholders” Moonves said on a late October conference call.
Lately, though, doubts about CBS’s ability to keep up the dividend appear to be spreading (to be fair, a number on Wall Street have questioned the payouts for quite some time). First, on Monday, Sanford Bernstein analyst Michael Nathanson cut his rating to “underperform” and warned that CBS might have to “drastically” reduce the dividend.
Now we get the following from Barrington Research’s Jim Goss, who cut his rating on the stock as well as 2009 earnings estimates. Here are some highlights:
Our new estimate progression suggests that it will likely take several years to restore the earnings level we estimate CBS achieved in 2008. Consequently, while we felt the board might be successful in maintaining its $1.06 annual dividend rate through a temporary shortfall in profitability, we now feel the rough patch will be longer, and the high level of dividend payment will become more difficult to justify. The arguments have created a tug of war between an exceptional return of cash to shareholders, versus a more prudent posture that could conserve cash to repay debt. The latter strategy would strengthen CBS’ financial position and reduce risk to its investment grade credit rating.