Is This a Dividend to Die For or From?

Shares of Pitney Bowes (NYSE: PBI  ) hit a 52-week low on Friday. Let's take a look at how it got there and see if cloudy skies are still in the forecast.

How it got here
If we could somehow get our hands on Doc Brown's time-traveling DeLorean and head back to the early 1990s, then Pitney Bowes would be a top-tier investment in most portfolios. However, the emergence of digitized communications and increased levels of competition are slowly draining Pitney Bowes' operations from the inside out.

The proliferation of email and online everything has made the U.S. Postal Service almost an afterthought. As it's one of Pitney Bowes' largest customers, that means fewer orders for mail equipment, and these could be reduced even further if the Post Office goes forward with its plans to close offices and/or reduce hours.

Competition has also been a major concern, as both Stamps.com (Nasdaq: STMP  ) and Endicia.com, owned by Newell Rubbermaid (NYSE: NWL  ) , have garnered the lion's share of the online postage market that Pitney Bowes appeared to be in line to control just years ago.

The impetus for Pitney Bowes' double-digit tumble on Friday was yet another weak earnings report that noted a 6% drop in revenue and a 56% drop in EPS to just $0.38. Furthermore, Pitney Bowes lowered its full-year forecast to a range of $1.95 to $2.15 from a previous range of $2.12 to $2.32 .

How it can regain its swagger
Since undoing the invention of the Internet is out of the question, Pitney Bowes will need to focus on forging cost-saving and distribution-expansive partnerships. As my Foolish colleague Dan Caplinger notes, Pitney Bowes has formed a partnership with both FedEx (NYSE: FDX  ) and the United Parcel Service, but the results from these deals have been less than impressive. Pitney Bowes is hoping it'll garner better results from a recently signed geocoding partnership with Facebook (Nasdaq: FB  ) .

If the company can somehow maintain its dividend, there's a shot that investors will step in to buoy the stock. Currently yielding 12%, Pitney Bowes' payout ratio of 73% (based on the midpoint of full-year EPS guidance) appears sustainable. Keep in mind, though, that EPS estimates have been falling at a rapid pace in recent quarters.

Finally, if Congress would do its part to save the ailing U.S. Postal Service, a weight would definitely be lifted off Pitney Bowes' shoulders. I'm not saying this ends a perpetual decline in mailing volumes, but it'll take some of the uncertainty the company is facing off the table.

The call
Now for the $64,000 question: What's next for Pitney Bowes? That's going to depend on whether Pitney Bowes can keep cranking out exorbitant dividend payments, whether it can reinvigorate stagnant mail equipment sales through expanded partnerships, and whether the U.S. Postal Service can somehow reverse its growing losses.

Our very own CAPS community gives the company a three-star rating (out of five), with 84.2% of members expecting it to outperform. I definitely don't share the optimism of the majority, and my current CAPScall of underperform on Pitney Bowes is up 43 points.

You might think I'd be tempted to close my selection here, but there are few catalysts that suggest the downward pressure on Pitney Bowes is going to abate anytime soon. I give it a year or less before EPS estimates drop enough to coerce Pitney Bowes to reduce its dividend payment. More specifically, the company has $3.2 billion in net debt to contend with and it just seems likely that its dividend payment will need to be reduced in order to address that debt. That double-digit dividend yield is really the only factor supporting Pitney Bowes from heading into the single-digits -- once that falls, it could be lights out for Pitney Bowes.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and has bought calls on, Facebook. Motley Fool newsletter services have recommended buying shares of FedEx, United Parcel Service, and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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