No other words to describe it other than “totally unacceptable”.
First watch the video of Dow Chemical (DOW) CEO Andrew Liveris:
So, what to think.
First:
Mr. Liveris, the market is not telling you the dividend is too high, the market is telling you we are in a very mean global recession. You make the building blocks for almost anything sold in the global economy. Because of that, the market is saying they expect your earnings to suffer, greatly. The market is telling you that the reason to invest in your stock now is the dividend of which you have said “this CEO will not cut the dividend”. Remember Dow’s 96 years of uninterrupted and uncut dividends? If I do the math that takes us back to the 1929-1935 years which were far worse than anything we face today. This why the news of the action has had no effect on the stock today.
Second:
Rohm & Haas (ROH). Yes we all expect it to get done also, the only people who want it done more than you are the Rohm & Haas shareholders. Without your bid, their $78 offer becomes a $30 stock. Trust me, they want this….bad. Tell them “go sit down and wait your turn”, they will.
Third:
Things will get better, take a breath. Walk away for a few days, go to an island and clear your head. You have not slept much obviously from the video and need a fresh outlook. Oil (USO) prices will rise significantly in the second half this year and currently tentative Arab nations will have renewed and stronger desires to diversify their revenue streams, and will have the cash to do so. You offer them that opportunity.
Fourth (here is the solution part):
You cannot cut the dividend and ever have the trust of shareholders ever again. You can’t. You swore up and down all fall it would not happen, so it can’t. I understand economic conditions have changed but using that excuse simply means you and your management team were not prepared, still bad. How can you do it and still save face? Put it in arrears for current shareholders.
This would take Board approval (you are the Chairman) but it could be done. Simply put, for shareholders of “x” date, the current dividend level is maintained but 50% of it will be paid in arrears 1 year from now. The current rate for new shareholders after “x” date is 50% lower. This will stabilize the shareholder base as current shareholder are not likely to sell and forgo the 50% in arrears. If it means anything, I wouldn’t.
No you can’t just cut it now say you will raise it next year, if you cut it now, we will not believe you and we already now dividend increases come much slower than reductions do.
I know the details are more complicated than that but it could be done. This gives you the financial flexibility you need now and while not destroying shareholder trust in you.
Disclosure (“none” means no position): Long DOW, Long OIL
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7 replies on “Thoughts & A Solution to Dow Placing Dividend Cut "On Table"”
Your dividend solution may be the dumbest idea I’ve ever read from a smart guy.
IMO Liveris has lost his credibility…tip toe around this company
mike….rule here…
this is not a YAHOO message board…. if you are going to insult you have to offer reasoning or an alternative
They can put the dividend in arrears just by promising to make investors whole. The value of the dividend will be included in the stock price. While his statement is tough, and they have a long, uninterrupted streak of dividend payments, I think they and others need to consider the current cost of capital and what they can do with the money.
My apologies. But, c’mon, the costs and gyrations required to act on your suggestion surely do not merit its serious consideration. You would almost certainly need a new class of shares to pull this off, and management energies should be directed in other areas at this time.
I’ve never been really good at figuring out which management teams are the best, at least not until I’ve followed a name for a few years. I have come to believe that management is very important, though, and certainly more so than I used to think. And I have come to fear that Liveris may be a fraud – not in the criminal sense, but in the sense that he projects competence but reeks of incompetence.
I will join all others in saying that it is quite discomfiting to be told that the dividend is on the table so soon after hearing that “this CEO will never cut the dividend.”
Come to think of it, the dividend may end up being cut – and not by “this CEO.”
mike…
not really, it could be done rather simply… put the lawyers on it, not mgnmt.
buffett like him and is rather good at judging folks..we’ll see.
I take some comfort from that – Buffett’s support is good news. And the Kuwait failure is a healthy dose of bad luck. Stuff happens.
I have a few companies that I think should just run their businesses, pay the next four dividends, and then see where their shares are trading – likely much higher.
Interesting times.