I love dividends, and it hurts to say this as an investor of Nokia (NOK); however, I believe that Nokia should stop issuing dividends for a while. I know, this would turn off a lot of dividend investors and drive the share price even lower than it is right now, but this is crucial for the company's survival. At a time when the company is running through its cash, it shouldn't throw away its existing money this way.
Nokia's debt rating was recently reduced to Baa3 by Moody's. This is just one step above debt rating of Greece, also known as "junk" level. This will make it really difficult and expensive for Nokia to borrow more money to run its operations. This means that it is crucial for Nokia to hold onto any money it currently has. The company current has long-term interest-bearing liabilities totaling $5.11 billion. Also, the company's deferred tax liabilities sum up to $1 billion. The company's short-term liabilities are $860 million. If the company was currently profitable, these numbers wouldn't look too dangerous; however they look very threatening as the company is losing money.
In 2011, the company's operating loss was $1.45 billion, while its dividend payments totaled $979 million. Obviously if it wasn't for the large chunk of dividend payment, the company would have been in better financial shape right now.
Would it make some investors angry if Nokia announced that it won't pay dividends for a couple years? The answer is probably yes. However, as an investor, if Nokia goes bankrupt, I will lose all my investment in the company. I would rather lose on 5-6% dividend payment (which gets deducted from the share price and gets taxed anyways) than lose my entire principle investment in this company. Of course, I am not saying that canceling dividends for a couple years alone will save the company from bankruptcy, but it can buy the company a significant amount of time to get its act together. Right now Nokia is fighting against time, and time is running out.
On a side note, I don't think Finnish government will let Nokia go down without a fight. As Europe is divided into 2 parts (i.e. the "fiscally responsible north" vs. "fiscally woeful south"), having its largest corporation go bankrupt would result in a huge blow to Finland. The country is small enough to face a recession in case Nokia goes bankrupt, as the company represents nearly 2% of Finland's GDP and nearly 20% of the country's exports.
I do not recommend buying Nokia at the moment, due to huge uncertainties surrounding the company. However, I don't recommend selling it either, because this will result in a loss for 99% of the company's investors, as the company is currently experiencing its 15-year low share price. Holders of Nokia may benefit from selling covered calls dated 2013 or 2014. The premium will at least make up for part of the loss as the company (I hope) recovers.
Note: €1 was worth $1.32 at the time of this article was written.
Disclosure: I am long NOK.