Can Dead Dividends Deliver Growth?http://www.fool.com/investing/general/2013/04/08/can-dead-dividends-deliver-growth.aspx Justin Loiseau
April 8, 2013
On Feb. 26, Atlantic Power (NYSE: AT) did something responsible: It slashed its dividend by 66% in the name of long-term value creation. But the aftermath of its actions shows that dividend haircuts don't always look good. Let's dig deeper into Atlantic's decision, peek into the past for some much-needed perspective, and check out the new look of another company that recently received a dividend haircut.
Dawn of the dead dividend
In real numbers, this announcement represented a 66% drop in the company's monthly payouts, a move that would've devastated the utility's 10.2% dividend yield – if not for its share price plummet.
But the cause for Atlantic's crash didn't come from its dividend cut. Since its announcement, three law firms have filed class action lawsuits against Atlantic for intentionally misleading investors about its current cash flow and the impending deadlines of key contracts. If the allegations turn out to be true, Atlantic's dividend cut did nothing more than reveal an inevitable bald spot in the company's receding hairline.
Look into the past...
CEO Robert Fagan's carefully chosen words during the announcement hint at what he was sure would amount to Wall Street suicide: "We recognize the greatest impact will be on our retail shareholders. However, we believe that it will be in their interests longer-term... This level of dividend positions TECO Energy to return to... long-term dividend growth when conditions improve." But since that fateful day, TECO's stock has stepped up a respectable 66% alongside its growing dividend.
Beware the "Stairmaster"