Pacific Telesis Stock Dividend to Stay as Is
Pacific Telesis Group surprised Wall Street on Friday by leaving its stock dividend intact--for now.
The San Francisco-based holding company for Pacific Bell had widely been expected to cut the dividend to conserve funds for costly capital-spending projects. It would have been the first of any of the seven Baby Bell phone companies ever to do so.
Instead, PacTel said its board met Friday and decided to maintain the first-quarter dividend at 54.5 cents a share, or $2.18 on an annual basis, its level since June 1992.
The quarterly dividend will be paid May 1 to owners of record April 9.
The company didn’t explain its decision Friday. Nor did it make any pledge about future dividends. In a statement, PacTel said that “the board . . . will continually evaluate the dividend in light of changing industry, regulatory and competitive developments. The company continues to assess opportunities to invest in new markets which could create growth and strong financial returns for share owners over time.”
Wall Street had pushed PacTel’s shares lower recently, largely on expectations of a dividend cut. The stock, $35.25 in early January, closed at $27.375 on Thursday. On Friday the price fell as low as $26.625 but ended the day at $27.25. Trading of the stock on the New York Stock Exchange was suspended near the market close in anticipation of the company’s announcement, and it did not reopen for the day.
PacTel’s earnings aren’t expected to rise much before 1999, in part because of the heavy investment the company wants to make in new communications technologies, including wireless cable TV. Because the dividend currently eats up about 90% of earnings, many analysts have long expected the company to reduce the payout.
But such a move would risk angering many PacTel shareholders, especially individuals, and also an even deeper dive in the stock.
“I think the company decided it needed to be more responsive to its shareholder base,” said Ron Altman, analyst at brokerage Furman Selz in New York, in explaining the decision against a dividend cut.
Even so, analysts noted that PacTel on Friday again warned about the dividend’s future.
Altman said the company may be trying to pressure state regulators to alter certain aspects of telecommunications deregulation in the company’s favor.
“I think part of the message is, ‘If you keep hammering us, we’re going to have to cut our dividend, and that will have a negative impact on our ability to raise capital and thus on the future services we can deliver,’ ” Altman said.
