Is Nokia's Dividend Safe?

• Report this Comment On July 16, 2011, at 4:34 PM, Bunnyturd wrote:

  Here is an example of bad analysis that lead to the totally wrong conclusion. NOK will cut divided, 100% guaranteed.

  The major error in all the calculation Dan presented before is that they are based on trailing earnings. NOK is going through major change and earnings is dropping like a rock.

  How could you reasonably use trailing earnings to make these calculations when you are trying to determine soundness of FUTURE dividend?

  NOK consensus EPS for 2011 is now expected to be around $0.29 and for 2012 it is around $0.40 a share. Given the major problems and transition NOK is going through the likelihood of any upside in EPS is low.

  If NOK doesn't cut dividend and keep paying $0.55 a share, EPS payout ratio would be a whopping 189%!!

  Similarly free cash flow payout ratio based on last years number is..... well, foolish!

  Look at NOK's cash flow history. It had large positive cash flow until recently. In fact cash flow declined dramatically in the past year. In the last quarter it actually had negative cash flow of $250 million! That trend is likely to continue with major restructuring charge yet to be booked.

  So to understand NOK you can't simply do some superficial number crunching. You must look ahead objectively.

  NOK has $16.5 billion in cash base on last earnings report. However if you subtract its large debt, and $2 billion in cash it paid in dividend in May, it leaves around only $7.5 billion cash net of debt.

  With negative cash flow of about $1 billion expected in next 2 months, and huge restructuring charge ($1-$1.5 billion range) still pending, it will be down to around $4 to $5 billion cash next year.

  If NOK pays the current dividend, it will have to use up another $2 billion... which far exceeds its expected annual earnings.

  A dividend payout of $2 billion is just not going to happen... regardless of what kind of inventive math Dan Dzombak comes up with.

• Report this Comment On July 16, 2011, at 4:37 PM, Bunnyturd wrote:

  "With negative cash flow of about $1 billion expected in next 2 months,"

  I meant to say next 12 months.

• Report this Comment On July 16, 2011, at 5:49 PM, Trabantia wrote:

  I agree with Bunnyturd, Nokia will definately cut their dividend. Sales of their smart phones are dropping, their Symbian OS is outdated and can't compete with iOS and Android and it's still unclear if WM7 will be the killer OS for Nokia (probably too little, too late).

  Their products used to be top notch, but their losing ground very, very fast.

  Time to ditch NOK I guess.

  http://goo.gl/3y8uz

• Report this Comment On July 16, 2011, at 6:33 PM, gimmee wrote:

  Even if they didn't need to cut, they now can with impunity. At todays price, they can cut it by 50% and still yield 4.35%. That's still an above market yield. What's the point of paying out 8.70% if you don't have to?

  The only way they make any sort of come back is if they adopt Andriod and become another commodity player. That's the best they can hope for. Consumers don't want yet another platform to confuse themselves with. They want uniformity and conformity. Why buy a Nokia if it means not getting the same apps as everyone else? That's why Iphones did so well. People want what works well, but also what is familiar.

• Report this Comment On July 16, 2011, at 7:22 PM, techy46 wrote:

  Agree, Nokia will cut their dividend by 50% to around $.27 per share to keep it under EPS for 2011 and 2012. The wild card is what really is their 2011 and 2012 EPS? We won't know more about that until the end of next week ad the following two quarters. The other very important issue is when will Microsoft release Windows 2008?

• Report this Comment On July 16, 2011, at 9:30 PM, jhf678 wrote:

  Maybe Cisco should acwuire Nokia and enter the smartphone competition. Cisco will release their Cius tablet this month. It will be a hit for businesses.

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