Shares Tumble as J.C. Penney Cuts Quarterly Cash Dividend

Struggling retailer J.C. Penney Co. on Monday took a step most companies are loathe to take: It slashed its cash dividend payout to shareholders.

Although the move was expected, Penney’s shares still fell further, to their lowest level since the early 1990s.

Penney said its board set a quarterly dividend of 28.75 cents a share, a 47% reduction from its prior quarterly dividend of 54.5 cents. On an annual basis, the dividend now will be $1.15 a share, versus $2.18 previously.

The new quarterly dividend will be paid Feb. 1.

Penney becomes just one of 133 U.S. companies that have either reduced or omitted their dividends so far this year, according to Standard & Poor’s Corp. By contrast, 1,869 companies have either raised their dividends or declared extra payments this year.

Penney has been squeezed by discount retailers such as Wal-Mart Stores, Kmart and Dayton Hudson’s Target stores, as well as upper-end department stores such as Federated Department Stores’ Macy’s and Bloomingdale’s.

Last month, Penney said third-quarter earnings fell 24%.

Penney stock has plunged from a 52-week high of $56.13, in part because the market has figured that the dividend couldn’t be sustained given falling earnings.

Even though dividends have become less important to many investors, they matter most in situations where a company seems to offer little in the way of near-term stock appreciation--as in Penney’s case.

On Monday, the stock fell as low as $19.69 before closing at $20.50, down 63 cents on the New York Stock Exchange.

At the current dividend rate, the stock’s annual dividend yield still is high: 5.6%, compared with an average of less than 1.2% for the typical blue-chip stock.

Chief Executive James Oesterreicher said the new dividend rate allows the company to reinvest a significant portion of earnings into business operations, including updating traditional retailing formats, growing its Jack Eckerd drugstore unit and expanding its e-commerce business. He called Penney stock “highly undervalued.”

In cutting the dividend, Penney said it took into account the potential balance sheet and financial reporting implications of creating a tracking stock for its higher-growth Eckerd drugstore operations.

Eckerd had seen strong growth in recent quarters, helping to offset falling sales at J.C. Penney’s department stores.