Can Citigroup Maintain the Dividend?

Citigroup's dividend yield keeps rising as the stock keeps falling. A month ago, the yield was about 4.5%. At last look, it had reached 6.8% as the stock fell below $32 per share. The initial sell-off in the stock had to do with news that the company would write-off an additional $8-11 billion in sub-prime CDOs. But the stock has continued to fall because many investors are betting that the dividend will have to be cut in order to shore up capital.

So far at least, the board has indicated that the dividend will be maintained. But suppose it is cut? Will that drive the stock price lower? It may, but I doubt it will go much lower. In fact, investors may view a dividend reduction as good news. It could signal the board's determination to get serious about the company's financial problems.

My view is that Citigroup has reached a low enough level to justify the risk of buying some shares. That's exactly what I just started doing. My investment will likely be dead money for a while, but taking a page from Warren Buffett's book, it should pay off handsomely in the years ahead.

Comments

[Uncle Bill:]

What makes you think Buffett would buy something that "will likely be dead money for a while"? You give no financial reason for buying the stock, because -- like the rest of us -- you have no idea what the bank holds. Total blind speculation. If you think that's the way to add alpha to your portfolio, you are mightily mistaken.

2007 Nov 09 07:18 AM

[Norman Lepo...:]

Great article, but "dead money" was not appropriate. The dividend is income. This is not "dead money." I believe it is a great long term investment. Also, Buffett owns many financials.

2007 Nov 11 06:17 PM