Acting Intelligently After A Dividend Cut

The Viacom dividend cut in September, which resulted in the annual payout declining in half from $1.60 to $0.80 per share, is one of the more unnecessary cuts to payouts I have studied based on a fundamental profile analysis.

Despite the circus surrounding Viacom right now, it is still making over $5 per share in profits, or a little over $2 billion per year. Even before the dividend cut, the company was only returning to shareholders $1.60 per share, or about $600 million per year. This Viacom dividend cut meant that the Board of Directors saw wisdom in paying out to shareholders $300 million rather than $600 million of its $2 billion profit stream, or 15% rather than 30% of overall annual profits. Off the top of my head, I cannot recall any other firm cutting its dividend from such a low initial dividend payout ratio amount.

Continue Reading!