UBS Downgrade of WorldCom Another Blow to Telecom Giant

WorldCom-MCI Group’s annualized stock dividend yield of 30%-plus looks too good to be true, and probably is, a brokerage told clients Tuesday.

The warning helped drive MCI Group shares (ticker symbol: MCIT) down $1.23, or 16%, to $6.30 on Nasdaq, in another blow to the devastated telecom-stock sector.

UBS Warburg analyst John Hodulik said struggling parent company WorldCom may undertake a restructuring that could lead to a cut in MCI’s annual cash dividend, now $2.40 a share.

WorldCom created the MCI Group shares in June to track the telecom giant’s consumer long-distance business. The high dividend was meant to attract investors otherwise worried about the industry’s problems.

On Tuesday, Hodulik downgraded parent WorldCom shares to “hold” from “buy,” citing the “increased likelihood” that WorldCom may shift debt to MCI, cut MCI’s dividend or fold MCI Group shares back into WorldCom.

WorldCom shares (WCOM) fell 41 cents to $6.11 on Nasdaq.

At MCI Group’s Tuesday stock close, the annualized dividend yield based on a $2.40-a-share dividend is 38%. That is more than 10 times the 3.62% yield on a two-year Treasury note--assuming that MCI continues to pay the dividend at the stated rate.

Tuesday was the stock’s ex-dividend date, meaning investors who buy the shares now aren’t entitled to the 60-cent quarterly dividend to be paid in April.

At WorldCom, a spokeswoman said WorldCom Chairman Bernard Ebbers “said we would be able to continue to pay the MCI dividend based on the business plan we have for this year.” The spokeswoman also said that “combining the [tracking stock] is not being considered.”

Metropolitan West Launches New Funds

Metropolitan West Capital Management, a Newport Beach-based institutional money manager, said it launched its first retail mutual funds Tuesday, joining the increasingly crowded marketplace for “value”-oriented stock funds.

The firm’s Intrinsic Value Equity Fund and International Value Fund are co-managed by Howard Gleicher and Gary Lisenbee, who have worked together for more than a decade running portfolios for large clients.

The new funds, which carry no load, or sales fee, require a minimum initial investment of $5,000 (or $1,000 for retirement accounts).

Value funds--those focusing on companies with low share prices relative to earnings and other criteria--generally have outperformed “growth” funds (which focus on companies with fast-growing sales and earnings) over the last two years. That makes it easier to market new value funds to investors, analysts note. Other firms that recently have launched new value-style funds include Turner Investment Partners and Harbor Funds.

Metropolitan West Capital, which manages more than $2 billion, is an affiliate of Los Angeles-based Metropolitan West Financial, which hired former Vice President Al Gore as a pitchman in November.

Josh Friedma

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Dividend Doubts

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