On November 1 I wrote, simply, “Citigroup’s (C) dividend…isn’t about to get cut. Lots of things may happen but that ain’t one of ‘em.) Stock would crater.”
Since then, the stock has tumbled 21%; it’s off 44% from June. And for its $7.5 billion investment, Abu Dhabi gets a yield of $11 a year. One analyst told MarketWatch that after tax, the 11% is equal to Citi’s dividend yield of around 7.25%. The difference, of course, is that the Abu Dhabi yield is guaranteed; Citi’s dividend, isn’t.
Which gets us to the moral of yesterday's story: In its press release, Citi said the $7.5 billion would help it “pursue attractive opportunities to grow its business,” while also helping the bank “access capital in an efficient manner…”
What it didn’t say: Anything about its dividend. And while the thought here less than a month ago was that the dividend was safe, the credit calamity continues to escalate and it appears that Citi’s fourth quarter write-downs and earnings prospects for next year would make the current dividend unsustainable.
By way of disclosure, that analysis comes from one of my very best trackers of financials, who was quick early on to get me thinking about some of the things Citi wasn’t saying in its third quarter earnings warning. He didn’t originally believe the dividend was vulnerable, but now he believes CDO write-downs and credit provisioning in the fourth quarter could surpass $20 billion. “That,” he says, “makes the dividend vulnerable.”