Different views on CBS dividend


Pali Research analyst Richard Greenfield began coverage of CBS Corporation this week and declared the stock a “sell” – calling a cut in the company’s hefty dividend inevitable. Merrill Lynch analyst Jessica Reif Cohen, meanwhile, upgraded CBS to “neutral” from “undeperform” and said the dividend “appears safe.”

According to Greenfield, with the US economy deteriorating and advertising revenues in decline, his fellow analysts have overestimated CBS’s earnings for 2009. Rather than the consensus of $1.42 per share, he thinks CBS will struggle to earn a buck a share next year. So he’s predicting that the dividend of $1.08 annually will be cut by at least half by mid-2009.

“In our view, the size of the current yield reflects skepticism by the market that CBS will be able to maintain its dividend,” wrote Reif Cohen. At the current stock price, the yield on CBS stock is around 11.5% — but she doesn’t foresee any cut in the near future. “Management considers the dividend ‘sacred’ and has consistently underscored its belief that growing the dividend over time will drive positive returns for shareholders,” she said.

So, with the stock price so beaten down, the Merrill Lynch analyst has moved CBS up from “underperform” to a “neutral” rating. She has, however, dropped her target price a buck, to $13, which is still well above where it has been trading of late.

RBR/TVBR  observation:
After hearing Les Moonves brag about being able to raise the dividend repeatedly after CBS and Viacom separated, he would really have to swallow hard before announcing a dividend cut. We would expect him to pursue many other options before going that route.