With shares of Citigroup (NYSE: C) beaten down pretty badly and still looking for ways to raise capital, it should turn to the most obvious source of cash: cutting its dividend.
I know, it would send the wrong message and might cause the stock to take another hit. But if the stock is indeed undervalued, as its shareholders presumably believe it is, it's the right thing to do.
Here's why: By selling off bits of the company to other firms while the stock is in the basement, Citigroup is getting very little money for the amount of ownership it's giving up. And all in the name of continuing to return cash to shareholders so that they can pay a tax on it? It makes no sense at all.
According to Forbes, "A Citigroup spokesman wouldn't comment on the dividend speculation, saying it is a matter for the board of directors. On Nov. 4, a statement by the company said there were no plans to reduce the current dividend level."
Citigroup's institutional shareholders should be pleading with the company to cut the dividend. If they think the stock is going to rebound, why would they want the board and management selling it off to overseas firms for a fraction of its long-term value?
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Reader Comments (Page 1 of 1)
1-11-2008 @ 11:53AM
alan said...
Too bad this article makes sense, that's why C will not follow a simple logic for instant cost reduction. No, instead we have the deafening silence of Mr. Pandit and Co. Sure, sell revenue generating slices of the business-- obvious income loss as well as making one's competitors stronger in that sector.
Sure, the bed is on fire and radical action is needed so how about thinking through the long as well as short term implications of an action. How about a sliding salary REDUCTION . There are no job losses and there are no huge reserves set up either.
Morale will sink a bit more, but at least there will still be sufficient mapower in each organization to get the job done. The "sliding" element is the key. For entry level employees, say up to $50k, somewhere between a 3% - 5% hit. At the $500k level a 15% hit. I'm only talking base salary so the $500k guy/gal will just have to learn to live on $425k. When you add in bonus' which are 2x to 3x at this level, don't worry these people and their families will definitely NOT go hungry .
But C will do no such thing. Instead they appoint Carl Levinson a the head of restructure. This is the person who is responsible for much of the motgage/sub-prime mess. Guess what he'll screw up next !!!