Times Boosts Dividend as Challenges Mount

The newspaper outfit's increased payout prompted S&P to put the company's debt rating on CreditWatch negative

Just as it's done every year for the past decade or so, The New York Times Co. (NYT) raised the annual rate on its dividend to shareholders on Mar. 22. But these aren't ordinary times for the parent of the New York Times.

On Mar. 23, Standard & Poor's Ratings Services put the New York Times' BBB+ corporate credit rating on CreditWatch with negative implications (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Cos.) in the wake of the dividend announcement. The company's "financial profile is currently weak for the rating," said Standard & Poor's credit analyst Peggy Hwan Hebard in a statement March 23. She added that the company's ongoing challenges have affected its operating performance and it's planning on heavy spending in the near-term.

The rating agency is watching to see if the newspaper company's credit will worsen, and pointed out that the New York Times is sharing a greater cut of its earnings with investors even while facing a host of financial challenges.

The New York Times lost more than $543 million during 2006, as the Internet continues bringing tumultuous change to advertising and reader habits. Most of the material from the company's flagship newspaper, for example, remains available to readers for free online, where the rates charged for advertisements remain low compared to other forms of media such as old-fashioned print.

Meanwhile investors have been shunning old media stocks during recent years, and activist investors have been champing at the bit to shake things up at newspaper outfits. The New York Times' stock has shed more than 40% of its value since 2000, after the dot.com bubble burst.

As the newspaper company fights to shore up investor confidence, the New York Times announced on Mar. 22 that it would increase its regular quarterly dividend by 31% to 23 cents per share from 17.5 cents per share. The dividend is payable on June 13 and is the 154th consecutive one that the company has paid since going public in 1969. Over the past decade, the New York Times has raised its dividend at least once a year.

"Recognizing that the media marketplace is in the midst of an extraordinary transformation, we will continue to exercise strong financial discipline as we execute on our business strategy and allocate capital," CEO Arthur Sulzberger, Jr. said in a press release March 22.

The company's stock rose 2.1% to $23.72 per share near closing time on Mar. 23 in NYSE trading.

Sulzberger is battling to steer the New York Times through its stormy waters. The company announced plans in July to consolidate its New York metro area printing facility into a newer one in College Point, N.Y. and to close its older facility in Edison, N.J., for example. The company is also going to cut down the size of all editions of the Times, so that the printed page will decrease from 13.5 by 22 inches to 12 by 22 inches, in the third quarter of 2007.

Other recent efforts include the building of a new headquarters building in New York City, which is supposed to be ready for occupancy in the second quarter of 2007. The company says its capital expenditures will range between $340 and $370 million in 2007, compared to $358.4 million in 2006.