When Dividends Get Right-Sized

Posted by: Ben Steverman on April 14, 2008

About the only thing financial stocks have going for them is their dividends. Banks’ stock prices have fallen so far over the past few months that their dividend payout percentages often have hit the double digits.
Today Wachovia (WB) showed once again why investors shouldn’t trust those high dividend yields. The bank cut its dividend 41%.
Cutting a dividend is a big deal — it robs investors of one of the main reasons they own a stock.
So I was amused by Wachovia CEO Ken Thompson’s description of his bank’s move.
In a talk with analysts Apr. 14, he called it “right-sizing our dividend to enhance the organic growth of our equity base.”
What’s wrong with the word “cut”? No matter how much jargon and euphemism Thompson uses, the reality is clear: The bank is worried about the housing crisis, so it’s slashing its dividend to hold onto capital. Wachovia can’t afford to be generous to shareholders at a time like this.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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