Recently, Investors raise concerns on financial institutions and worry about their expected net income (or capital requirement) will not be sufficient to settle its dividend payout.
• Feb 25, 09 JP Morgan (JPM) is the 1st "giant" to cut its dividends from 38 cents to 5 cents, that will save JPM $5B per year;
• Feb 27, 09 General Electric (GE) cut its dividends from 34 cents to 10 cents, which will save $9B per year;
• Mar 04, 09 US Bancorp (USB) cut dividends by 88% to 5 cents and will save $2.6B;
In my opinion, I think dividend cut in such tough economic environment is understandable and it will also strengthen the company's capital and balance sheet and will reduce the risk of being downgrade. Unless, dividend cut is driven by an expectation of a huge potential loss.
The only "giant" that still did not announce a dividend cut is Wells Fargo (WFC). Stock price keep being pushed down these 2 weeks.
Operationally, I think WFC will make a profit in 1q09 and 2009 that is enough to settle its dividend payment. But if dividend cut can clear the uncertainty & risk that investors putting towards WFC. It is still a smart move to do so.
None of the companies I've mentioned above show any needs of capital injections. At least, not yet.
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