Sanford C. Berstein & Co. Said Merrill Lynch (MER) Should Drastically Reduce Dividend
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Sanford C. Bernstein & Co. analyst Brad Hintz said that Merrill Lynch & Co. (NYSE: MER) should reduce its common dividend to 50 cents per share from $1.40, which would lower payments to shareholders by $1.54 billion in 2010.
The Bernstein analyst believes that the dividend adds unneeded pressure to Merrill which already has a high dividend payout ratio. "The high dividend payout ratio will place unnecessary constraints on its inventory and balance sheet capacity, will limit Merrill's ability to compete effectively in fixed income proprietary trading, said Hintz.''
Merrill Lynch's capital raising efforts has increased shares outstanding by 87% in the past nine months, raising the cost of the dividend from $1.49 billion to $2.9 billion. However, concurrently, Merrill's "earnings power has decreased dramatically.''
Merrill's CEO John Thain told Maria Bartiromo that it is tough for Merrill Lynch to drop the dividend because so many employees rely on the dividend as large source of their income. Hmm, I thought that's why they get those big cash bonuses at the end of the year.
Without reducing the dividend, Merrill would pay about 65% of 2009 and 2010 earnings in the form of common and preferred dividends, which is more than twice Merrill's historical average from 1999 to 2006. Additionally, he estimates the dividend payout ratio would be more than twice the ratios of Lehman Brothers (NYSE: LEH), Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: GS).
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- Sanford C. Bernstein
- Maria Bartiromo
- John A. Thain
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