It wasn't but a couple of years ago that several Wall Street analysts were chiding newspaper companies for paying chintzy dividends. Me too. If newspapers were highly profitable but unlikely to grow fast, the reasoning went, they could at least reward shareholders with the good return of a generous dividend.
Like a lot of yesterday's wisdom about the industry, this strategy has been eclipsed by events. Most of the companies have more pressing needs for cash now than paying a big dividend (or the related strategy of buying back their own stock, indirectly increasing earnings per share).
Making debt payments comes first, maintaining a kitty for new product development is next. So shareholders hoping for a nice cash payout during these transitional times may be out of luck.
GateHouse Communications launched with the promise of a $1.60 yearly dividend -- an 8 percent yield -- in an initial public offering at $20 in late 2006.
GateHouse suspended the dividend indefinitely earlier this month. Wall Street judges that the company expanded too aggressively just before the worst of the downturn, and GateHouse stock has been trading at less than 50 cents a share lately.
When Belo spun out its newspapers into a new debt-free company (A.H. Belo) in February of this year, it indicated that it would pay a dividend of $1.00 a share, a 7 percent return on the initial price of $14 a share. Now the stock price has fallen to about $5 a share, and CEO
Robert Decherd said in his most recent discussion of earnings with analysts that the dividend will be re-evaluated by the board at its September meeting.
The New York Times Co., under pressure from dissident shareholders and bond rating agencies,
may also look at reducing its dividend, according to recent reports. The company actually raised the dividend just 18 months ago, but critics contend some of that money could be better applied to reducing the expense of carrying downgraded bond debt.
With family controlled companies like The New York Times (or Belo), it is sometimes alleged that family members keep the dividend high for their personal benefit. I don't see the evidence for that. But it is worth remembering what happened to Times-Mirror and Dow Jones when family members got unhappy with how the stock was performing. Their dissatisfaction prompted a sale.
I think the Sulzberger clan has a much greater commitment to the business than did the Chandlers or Bancrofts. Nonetheless, with additional papers being put up for sale by the week, the current pressure on dividends all through the industry is bound to destabilize ownership further.
Incidently, this is an instance where the reported results for public newspaper companies can be assumed to apply to the privates as well. While we do not see specific numbers, they have the same set of pressures on what dividends they can pay shareholder/owners. It is a likely factor for putting papers like the San Diego Union-Tribune or Austin American-Statesman up for sale.
