The news-wire services were all abuzz today with the news that McClatchy (MNI) would suspend its dividend indefinitely following 2009 Q1.
The purpose of paying a dividend it to reward shareholders by telling them something like, “our company is so mature and profitable that in lieu of retaining our earnings for growth, reinvestment, or acquisitions we are going to give it to you”. Some companies have never paid a dividend. They feel that they can better grow the money for stockholders better than the stockholders themselves. Berkshire Hathaway, for example, has never payed a dividend and will most likely never pay a dividend.
Why did it take MNI until 2009 to realize the money in their coffers would most likely be better used to pay down crippling debt? Why is NYT still paying a dividend? Is it only because the Sulzberger family needs income? What about GCI? Why do they think their company is better off shedding cash than using the money to pay down debt and restructure?
I don’t get it. Paying a dividend is not fooling anyone into thinking your newspaper is strong. Do everyone a favor, retain those earnings and pay down debt until you figure out how to become economically sustainable.
Want to learn more about dividends? Here is an intro from Investopedia:
One of the simplest ways for companies to communicate financial well-being and shareholder value is to say “the dividend check is in the mail.” Dividends, those cash distributions that many companies pay out regularly to shareholders from earnings, send a clear, powerful message about future prospects and performance. A company’s willingness and ability to pay steady dividends over time–and its power to increase them–provide good clues about its fundamentals.
Continue reading at Investopedia.com
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