Eastman Kodak (NYSE:EK) shareholders won't get their fat 6.7% dividend anymore.

Management today slashed the check 72% from an annual $1.80 per share to $0.50. The usually sleepy Dow Industrials stock crashed as much as 14% in morning trading, from yesterday's $26.99 close to just above $23.00, at which the new yield is a paltry 2.2%.

Does this mean savings to invest in future growth? It better. The company had hit a free cash flow stride for six quarters as working capital management improved its balance sheet dramatically. But the efficiencies hit the wall in the last two quarters. There must be growth. To that end, Kodak said it would deploy the savings to pay down debt and invest $3 billion, including this year's $500 million PracticeWorks acquisition and the just-announced purchase of disease-detection software from privately held MiraMedica.

Kodak aims for $16 billion annual revenue by 2006 and $20 billion by 2010 -- lofty goals given it last hit $16 billion in 1996 and eked out trailing-12-month sales of $12.9 billion. Against this rusty decline, the company's new targets require 7.5%-a-year increases through 2006 or 6.4% annually through 2010.

What new investments will bring growth? Nothing in traditional film. The company finally said it was done advancing this product line. While it will continue existing products and market private label film internationally, Kodak will push -- anticlimax! -- into digital. But this means not only a range of products in digital photography but beyond, attacking highly competitive markets for printers and copiers dominated by Hewlett-Packard (NYSE:HPQ) and others.

No wonder then that Kodak has snared top execs from competitors to lead the push astride its three newly restructured divisions: James Langley from Hewlett-Packard heads Commercial, Bernard Masson from Lexmark (NYSE:LXK) leads Consumer, and ex-General Electric (NYSE:GE) exec Dan Kerpelman runs Health.

If ever Kodak can beat the rap for managers historically ingrown, too slow to change, and unwilling to make the tough calls, Chairman and CEO Daniel Carp -- the remaining lifer -- wants it to be now.

At some point, the new blood means that the stock becomes a strong candidate for turnaround investing. Taking management's 2006 EPS target of $3.00 a share and granting a benefit-of-the-doubt P/E of 20 yields a stock price of $60.00. That's a 160% total return in three years without the dividend and a 38% compound annual growth rate. Even half that wouldn't be too shabby.

But is the potential return worth the risk? I thought it might, before the free cash flow dried up for a second quarter. The signs are now the most favorable ever for a turnaround, but they may still be too late. Kodak has never acquired effectively for growth despite trying for 30 years. Yes, the dividend cut frees up cash to invest, but it's still a gamble whether management can invest it wisely.

The Brownie's got a frowny, but can the brand expand? Compare investing notes with friends on our Kodak and Hewlett-Packard discussion boards!

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