Monday, December 10, 2007

the feeling is mutual

A dividend growth investor's worst nightmare has come true for share holders of U.S. Savings and Loan, Washington Mutual (WM). WaMu cut its dividend by over two thirds after the market closed Monday in order to raise cash to fortify their capital and liquidity position. Since WaMu decided to slice their compensation to shareholders in a large way, I am guessing that shareholders will be tempted to pull their money out of this company in a similar way.

Investors in Washington Mutual may have seen this one coming though, as the bank was yielding 11.3% at today's close. The fact that investors pushed this stock down to a point where it yielded this high was a sure indication that most expected a dividend cut. The stock is now down almost 9% in after hours trading on the news. It will be interesting to see where the market leaves this stock Tuesday, as the shares are now yielding only 3.3%. If it sounds too good to be true, it probably is...


Jake said...

Funny I was looking at WaMu today. I expect it to be a tough day for other fiancials tomorrow as well. I hope the banks can navigate this situation without cutting their dividends.


4Life said...

It is always a sad day when an long-time dividend Achiever stumbles and falls. I have a very small position in WM that will need to be closed out.

Best Wishes,

Financial Jungle said...

You have to feel sorry for Oakmark's Bill Nygren, who has had a stellar long-term record as a value manager. If I remember correctly, his WM weighting represented 30% of the portfolio a couple years back. Now I think it shrunk to 15%.

Never put too many eggs in one basket. Personally, 5% is my upper limit for individual stocks, but nothing is over 4% yet.

Jake said...

Wow, there is red everywhere today in the market. Right now I am in a holding pattern until the financial stocks quit free-falling for a consistent period of time.

-Jake (The Dividend Investing Blog)

Doug Mehus said...

3.3% is still a fairly decent, or average, annual dividend yield for any financial institution. Canadian bank stocks generally yield between 3 and 4 percent per year in dividends. So, for a troubled U.S. savings and loan to slash its dividend 75% and still yield 3%, that's not bad.

With their current pricing level, they're a very attractive takeover candidate for a Canadian bank looking to expand into the U.S. in an aggressive way - if they can stomach a year or two more of choppy results and the baggage that comes with the fallout from the U.S. subprime mortgage meltdown.


Disclosure: I currently own no equities but plan on getting into the market soon. I'll never buy convoluted "collateralized debt obligations", asset-backed commercial paper, derivatives or even short a stock. I'm going to go with solid growth, dividend paying companies primarily in the industrial, consumer discretionary, telecommunications and financial sectors.