Keep Your Stinkin' Penny

By Rick Aristotle Munarriz
January 21, 2009 | Comments (3)

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Citigroup (NYSE: C) became the latest company to slash its quarterly dividend to a token penny per share yesterday. The news follows a similar move by banking rival Bank of America (NYSE: BAC) last week.

In fairness, the bank would send a mixed message to ask for TARP money with one hand while handing out chunky dividend checks with the other. Panhandlers shouldn't have holes in the bottoms of their tin cups.

However, this fascination with penny dividends rubs me the wrong way.

Citigroup and Bank of America aren't the only ones flicking copper at their shareholders. PremierWest Bancorp (Nasdaq: PRWT) and tiny REIT MHI Hospitality (NYSE: MDH) slashed their once-bountiful quarterly payouts to $0.01 a share. Other banks making similar slashes in recent months include Fifth Third Bancorp (Nasdaq: FITB), Seacoast Banking (Nasdaq: SBCF) and the aptly named Cascade Bancorp (Nasdaq: CACB), according to Ex-Dividend.com.

What's the point? Even with their share prices falling into the single digits, it's not as if the new yields will win over conservative income investors. The sound of payout-slashing desperation should be enough to scare away dividend fans for some time.

So what's going on here? Is this just some bogus facade? Are the few banks who survive hoping that we forget this ever happened in a few years, as they proudly proclaim that they have paid decades of uninterrupted dividends?

Just keep your stupid pennies, okay? If things are that bad, you can probably use the money. Spare yourself the paperwork and postage, too. 

If I want sustainable yields, I can probably do better by reading the latest issue of our Income Investor newsletter, or banking on stocks that are actually hiking their dividends. If your financial statements aren't making sense, you have no business giving out cents.

A penny for your thoughts? Just keep it, please.

Some other yield signs:

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Longtime Fool contributor Rick Munarriz pays attention to yield signs. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. Bank of America is a former Motley Fool Income Investor recommendation. The Fool has a disclosure policy.

Comments from our Foolish Readers

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  • Report this Comment On January 22, 2009, at 6:17 AM, wizard202 wrote:

    Surely all you gurus remember that many institutional investors cannot own or buy stocks that pay no dividend. Hence the penny-per-share payout keeps institutional investors dominant and boosts the price-earnings ratio.

  • Report this Comment On January 23, 2009, at 11:47 AM, wizard202 wrote:

    And, of course, the financial firms that accepted a federal bailout are prohibited from using any such funds to pay common dividends to shareholders; instead, they are paying high preferred dividends to taxpayers.

  • Report this Comment On May 11, 2009, at 2:01 PM, sophieshorttail wrote:

    In the case of MDH, they plan to increase that .01 dividend to .18 by the end of 2009 to keep their REIT status. But Rick, I agree with your (January) sentiment. We don't need no stinking penny!

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Related Tickers

11/24/2009 2:33 PM
BAC $16.16 Down -0.13 -0.80%
Bank of America Co… CAPS Rating: ***
C $4.24 Down -0.04 -0.93%
Citigroup, Inc. CAPS Rating: ***
CACB $0.92 Up +0.02 +1.96%
Cascade Bancorp CAPS Rating: *****
FITB $10.01 Down -0.16 -1.57%
Fifth Third Bancor… CAPS Rating: **
PRWT $1.54 Down -0.01 -0.65%
PremierWest Bancor… CAPS Rating: No stars
SBCF $1.37 Down -0.09 -6.16%
Seacoast Banking C… CAPS Rating: *

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