Mergers and acquisitions can do a lot of great things for companies: increase market share, improve economies of scale, and increase revenue, for example. But sometimes the initial phase of this lucrative joining-at-the-hip brings hardship, and our dividends are often the first cutback. Hopefully, after the ink has dried and the dust has cleared, companies restore their dividends. Let's look at some examples from two key sectors to get a better sense of when dividends go bad and what it takes to bring them back.
When Coors merged with Molson in 2005 to create MolsonCoors Brewing (NYSE: TAP ) , the company didn't have to cut its dividend. In fact, after three years, the company actually began raising its dividend again. Currently, its dividend yield sits at a solid 2.9%, with quarterly payouts double what they were six years ago.
Anheuser Busch InBev (NYSE: BUD ) is the largest brewer by volume, but the King of Beers is still paying the price for its size. In an effort to reduce debt after the 2008 InBev merger, the company significantly curtailed its dividend. Although its payout has risen dramatically since 2008, the company has said dividend increases completely depend on its ability to repay debt. This is responsible, but it also means the company's 2.1% trailing yield pales in comparison to some of its competition.
It seems odd to even mention Frontier Communications (NYSE: FTR ) in an article about dying dividends; the company's current yield stands at a whopping 10%. Frontier tripled in size after a major infrastructure acquisition from Verizon (NYSE: VZ ) in 2010, but the deal cost the small company $5.3 billion and resulted in a 25% dividend drop. But as fellow Fool Jim Royal points out, there is room for this payout to grow, and it may not be a bad idea to get in now.
On the flip side of the coin, Verizon recently completed an acquisition of its own, picking up cloud infrastructure leader Terremark for $1.4 billion in April. The telecom giant maintained its dividend payment in July, and management has gone on record with its commitment to dividend payments. Historically, annual increases have come in October, so we'll have to wait a bit longer to see for certain if this acquisition has any affect on payout.
Companies have the best intentions when it comes to mergers and acquisitions, but some are in better positions than others to navigate the storm than others. When it comes to our dividends, M&A should always raise a flag and spark some research.
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