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Marianne Paskowski



Why CBS’ Moonves Should Cut Dividend

February 12, 2009 12:04 PM

Next week CBS CEO Leslie Moonves will report earnings, and I wouldn’t be surprised at all to see a hefty dividend cut for shareholders.

Leslie Moonves

And that’s a good thing, considering the company’s cash flow is dropping due to the continuing downslide in ad sales.

Today CBS was trading at $5.60, just shy of the bottom of its 52-week track record ranging from $4.36 to $25.83.

That’s nearly a 19% yield, or what the street calls an “accidental high dividend yielder,” because the lower the value of a share of the company’s stock, the higher the yield on the dividend.

In press reports in December, Moonves said he had every intention of paying a solid dividend, but that he would do whatever is necessary to keep the business flowing. It’s time, Les.

Just yesterday, Sinclair Broadcast Group announced it was suspending its dividend, following many companies outside the media sector that have taken that same step earlier in the year.

Now it’s time for Moonves to step up to the plate and do the right thing for his ailing business model.

Taking that step, according to today’s Wall Street Journal, would eliminate $752 million in dividend payouts and put the money back to work on the company’s ledger sheet.

Agree?

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Comments (15)

Jeff Mulligan:

Marianne,

Now comes the big question: What can, or should, CBS do with the money if kept? The textbook rule is whether the money is more valuable to stockholders as a dividend they can spend or reinvest on their own, or as working capital the company will invest/spend on its own behalf. Which provides a better ROI to the company's owners?

The next question: If a dividend, how high should it be? Short of a company having no clue how to profitably reinvest earnings, a company need not pay such a fat dividend, especially given the short-term prospects that CBS stock won't soon be zooming. (What stock will?)

Moonves should cut the dividend by half or more, but keep some of it. Dividend payers are a rare breed these days, shining like gems to conservative investors.

Jeff

Marianne Paskowski:

This company is starting to trade like a penny stock and a 19 percent yield in unsustainable, hurting the company's balance sheet, making it attractive to no one.

CBS should cut the dividend, not do away with it, and reinvest the money in the future growth of the company, keeping people employed and creating new products.

Dividend payers are going away every day, Harley Davidson just cut its own as I'm writing here....m

Texas Tom:

As a (small) CBS stockholder, I'm in agreement about the need to cut the dividend. It's important that CBS hang onto enough of its profits to make it through a couple of rough years -- and to be able to invest in their programming during those rough years. Let others cut back during the downturn while CBS continues to invest, and CBS will come back stronger when the economy recovers.

Marianne Paskowski:

Hi Texas,
Appreciate your post because you are a CBS stock holder.And if you've have owned it for a year, you've seen the downward projectile that shart has taken.

A yield of 19 percent is not good for the company or the shareholders. I don't own the stock myself for a number of reasons, namely I write about the company and the yield scares me to death as an investor/trader.

Thanks for your cogent post...mp

In my many yeas of connection with the product producing side of CBS, I have seen many a change since the "Tiffany" Days of the late Mr. Paley.

Stupid decisions like the sale of CBS Records years ago. That was a money printing machine, not to mention the wonderful heritage of american music that no longer belongs to Americans.

Another was the give-a-way of the NBA Franchise that CBS Sports built througout the 80's, but that too is history now.

So, with a degree of experiential perspective, let me add my vote to holding the dividends dollars for the good of the "Mother Ship".

Les has not always exercised better judgement with regards to programming and other decisions, this one he has to make. Hopefully he will.
Peter Bright

Marianne Paskowski:

Hi Peter,
Larry Titsch (sp) didn't do much for CBS either. At a time when his competitors were creating cable networks he did not.

Was chatting with my broker today and he said he's trying to talk some die hards, long term holders of CBS. He pointed out that as recently as the summer of 07 the stock was trading for $35.

He, too, thinks that if CBS cuts its dividend, it will help the balance sheet and attract more investors when times improve.

Thanks as usual for your historical perspective...m

Cruiser:

Yo, Blondie --

Want to know what's really on Moonves's mind? Is he buying or selling CBS stock? Insider trading reports tell important stories.

Cruisin not bruisin

Marianne Paskowski:

Cruiser,
You and anyone else who cares what the top brass at CBS are actually doing with their own stock options can easily check this out at yahoo.com.finance, go go CBS, check Insider Roster. And be careful not to jump to conclusions.

You might be surprised to see how Sumner Redstone, Les Moonves and even the uber flack Gil Schwartz have taken dispositions (cashed in, in some cases, from the $32.00 heyday in 2007) on their CBS options. But some of them and others, bought more back later.

So thanks for reminding me, I actually read on the CBS message board on Yahoo Finance, not the most reliable source, to look at the insider trading and it was, indeed, a head scratcher.

Conclusion: CBS is not the most stable planet in the universe...m

joe:

Yes, he should cut the dividend.

Correct me if I'm wrong, but isn't almost all of CBS Corp's revenue come from advertising $? Not that any company (especially media/entertainment congloms) are doing well right now, but I'm not sure I would ever invest in a company that is so un-diversified. Not that I have other media company stock or anything, well except for the one my 401K is in.

Marianne Paskowski:

Joe,
Largely, yes,CBS gets the bulk of its revenue from advertising, and some retransmission consent dollars from cable operators that carry its owned and operated TV stations.

Viacom owns a 20 percent stake in the company, or something close to that, and Viacom is doing horrible right now.

CBS also owns CNET, the online service, don't think there's much revenue coming in from that rather new acquisition, especially now with online ad prices in the downward spiral.

Even the Walt Disney Co., a diversified media company had a crummy quarter, mostly from a slump in its them park division...m

Andy S.:

I agree, Moonves should cut the dividend and put some of that money to work where it will have an immediate tangible impact: right here in my wallet. I'd happily guarantee my viewership of CBS' prime time line-up for a reasonable stipend. I'll even promise to patronize at least some of the advertised products. You might call it pay-to-play; I call it instant economic stimulus. Advertising and promotion are such crap shoots these days; why shouldn't the network put its money on a sure thing - me.

Marianne Paskowski:

Hi Andy,
Well, you might be on to something there, a new economic model for the broken broadcast networks:)

Interesting piece in the WSJ last week about how the broadcast networks would love nothing better than to sever their ties with the affiliates and run programming on cable nets instead.

That's something that could happen five to 10 years down the road.

Interesting times, Charter, a cable MSO and some broadcast station group, forget which one, filed for Chapter 11 last week.

But back to the CBS dividend, I firmly believe it should be cut rather than head count, which is what happens in bad times like these.

m

Marianne Paskowski:

Yikes!

Just checked out Business Week's insider transaction s and it says that insiders are not at all bullish about CBS' future short term, having sold off 16.5 million shares in the last three months.

So I ask, what do they know that we don't? Plenty, it sounds like to me.

Cruiser:

Yo, Blondie, again --

As I wrote to you Thursday, "Want to know what's really on Moonves's mind? Is he buying or selling CBS stock? Insider trading reports tell important stories."

Wandering 'round the Web, I came across Business Week's stock database report on CBS insider trading
(http://investing.businessweek.com/research/stocks/ownership/ownership.asp?symbol=CBS).

Eye opening. The biggies are bailing. Redstone, Moonves, and other board panjandrums are quietly on the run.

Says BW, reporting on the last 90 days of activity: "Insiders control 3.69% of CBS, CBS.A through the 25,734,767 shares that they hold. This level of ownership is similar to that of many other companies in the media industry. However, over the last 3 months, insiders have sold a net 16.5M shares. This selling activity is heavier than the 2-year quarterly average and indicates that insiders are not bullish about CBS, CBS.A's prospects for the next 6-12 months."

Doesn't look like much insider confidence in the dividend or the stock.

Cruisin not bruisin

Marianne Paskowski:

Cruiser,
Thanks for the link for our readers on "insider transactions."

This reeks to me. Sure sounds like insiders know the dividend will be cut this week and recently bailed big time.

But what do I know, I'm only a blogger in the rock and roll band, but I don't like what I see here...m

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