Shareholders in Chemours Co. have seen the stock slide 38 percent since its spinoff a month ago from DuPont Co. Now, analysts predict the new company will have to cut its planned dividend.
While Chemours has slated an initial third-quarter payment of $100 million, analysts at UBS AG say the dividend will be half that amount. Analysts at Goldman Sachs Group Inc. and JPMorgan Chase & Co. estimate the payout will be slashed by 75 percent.
“We don’t think they can cover the current dividend without tapping the revolving credit facility, and that’s just not a reasonable way to think about dividend policy,” Matt Arnold, an analyst at Edward Jones & Co. who recommends selling Chemours, said by phone.
Cutting the payment wasn’t part of the plan laid out by DuPont Chief Executive Officer Ellen Kullman in April when she discussed details of the spinoff. Kullman said at the time that Chemours’ payout would compensate for a planned reduction in DuPont’s dividend. Investors got one share of Chemours for every five of DuPont they owned.
The idea of maintaining an overall dividend is significant for DuPont because it hasn’t cut its quarterly payment since 1982. Reneging on the pledge now could also bring new pressure to bear on Kullman, who has faced repeated criticism from Trian Fund Management for missing annual earnings targets. Trian co-founder and CEO Nelson Peltz told Barron’s earlier this month his firm will probably keep its DuPont shares and isn’t ruling out another fight for board seats.
Dan Turner, a DuPont spokesman, and Robert Dekker, a Chemours spokesman, said their respective companies’ boards will decide on future dividend payments.
The $100 million third-quarter dividend implies a per-share payout of about 55 cents a share and an annual yield of about 17 percent. Still, Chemours can reduce its dividend while remaining a high-yield stock, Arnold said.
Chemours rose 2.6 percent to $12.99 in New York on Wednesday.
The Wilmington, Delaware-based company is also taking steps to enhance its cash flow. It said in a June presentation it plans to fix or exit unprofitable businesses. It plans to cut annual expenses by $40 million in the second half and by another $120 million through 2016, Dekker said. In addition, capital spending will drop by about $100 million with the completion of a pigment plant expansion in Mexico, a project that should boost earnings, he said.
Chemours inherited its heavy debt load after DuPont extracted a $4 billion payment to help it repurchase shares. Chemours also took on 62 percent of DuPont’s environmental liabilities and unquantified liabilities from 3,500 personal injury claims.
“While DuPont characterized the Trian agenda during the proxy contest as ’lever up,’ the fact is Trian recommended prudent leverage at both Chemours and DuPont,” Trian said in a statement on Monday.