Pitney Bowes Enters Capitulation Territory

Feb. 08, 2019 11:27 AM ETPitney Bowes Inc. (PBI)23 Comments
Zvi Bar profile picture
Zvi Bar
4.91K Followers

Summary

  • Pitney Bowes stock has been in an extended downtrend. The stock is now trading at prices not seen in three decades.
  • The company just slashed its dividend, which may send a large portion of the remaining investor base out of the stock.
  • Pitney Bowes is still a profitable business that is likely to find value investment over the next two years as the company concentrates on growth businesses.
  • Pitney Bowes indicated it will accelerate its buyback plan, which should support a bottom and/or counter any coming wave of capitulation by possibly exiting high-yield investors.
  • Pitney Bowes is likely to become the subject of investor activism if it wallows at or near present levels for an extended period of time.

Earlier this week, Pitney Bowes (NYSE:PBI) reported fourth quarter and full year 2019 results. The quarterly earnings missed estimates and the company also significantly slashed the quarterly dividend from $0.1875 per share down to $0.05. This change in structure may indicate the company's long-term decline is ending and that 2019 could present an opportunity to invest in what may become a long-term bottom for PBI.

The dividend cut will change the shareholder base

It is likely that a significant number of Pitney Bowes investors allocated to the company for its income distribution in the form of a sizable dividend. Prior to this week's cut, the company's dividend yielded around 11 percent, and has been at least double the market's average yield for the last several years.

(Source: Seeking Alpha)

PBI dividendAs the above shows, Pitney Bowes' annual dividend was cut to $0.75 several years ago, where it remained until this quarter. As the share price continued to decline, this constant payout ballooned a little more each year, until the yield reached double digits.

(Source: Seeking Alpha; Red X by Zvi Bar)

PBI dividend yield The allure of this significant dividend was a likely siren's song that would coax the income-starved to allocate throughout the last decade. The cutting of that dividend payout by over 70 percent is likely to send a great many such investors scurrying for the exit (albeit a little later than they would have preferred).

Similarly, cutting that sizable dividend will attract a different investor base. Value investors will appreciate that the company may improve the company's balance sheet and use future cash flow for initiatives other than immediate distribution.

Accelerating the buyback could set a bottom

On February 4, 2019, PBI's Board of Directors authorized an incremental $100 million share repurchase, bringing the total current authorization to $121 million. This significant strategic shift from distributing

This article was written by

Zvi Bar profile picture
4.91K Followers
Zvi provides advisory services to companies, trusts, and individuals, including consulting expert services regarding retirement and estate planning. Zvi is admitted to practice law in the state of New York, where he offers cash management, Bitcoin, and Trust Protector services. Zvi is also The Claw of The Lava Empire and is an Amazon Influencer. No articles or discussions here shall constitute a legal, fiduciary or advisory role, but solely act as informative press and/or a starting point from which, ideally, further constructive discussion may follow. Comments are welcome, as are questions.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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