Cleveland-Cliffs (NYSE:CLF) has just announced a quarterly dividend of $0.06 per share (in line with the previous dividend which was raised from $0.05 per share to $0.06 per share) and a special cash dividend of $0.04 per share. The regular and special dividends will be payable on October 15, 2019, for shareholders of record as of the close of business on October 4, 2019.
This move comes after the stock lost much ground in August (I discussed the situation in this article) and, in my view, signals the management’s confidence in the company’s financials as well as its dissatisfaction with the current share price. Critics will argue that spending cash amidst ongoing investment in the hot-briquetted iron plant and U.S. - China trade war is reckless, but I don’t think that Cliffs has breached the red line with this special dividend.
As of the latest quarterly report, Cliffs had roughly 276 million shares outstanding (285 million on a diluted basis). An additional cash dividend of $0.04 represents an expense of roughly $11 million. In the first six months of 2019 (keep in mind that the first quarter is always the weakest one), Cliffs generated $151.1 million of operating cash flow. In the first half of the year, Cliffs sold 7.8 million tons of pellets while its full-year sales guidance is 20 million tons. Due to this sales seasonality, cash flow is set to increase in second half of the year, and Cliffs, which had $377.2 million of cash on the balance sheet at the end of the second quarter, can afford the additional $11 million expense.
At the same time, the resulting $0.10 dividend is not a long-term obligation, so Cliffs can quickly revert to the previous $0.06 dividend if the company feels that current iron ore and steel prices do not lead to
