Friday, December 08, 2006

National Semi Strange Dividend

National Semi (NYSE:NSM) announced financial results worse than some expected. At the same time they announce an increase in the dividend from $0.03 per share to $0.04 per share. The dividend yield was miniscule before and continues to be miniscule registering at significantly less than 0.75%. Dividend oriented investors have and will continue to give this one a pass.

So why announce a 33% dividend increase. I reckon that the increase will cost the company approximately $14 million in cash over the next year. Cash position has dropped, cash flow is off dramatically, margins are being squeezed there are real problems here. The dividend increase is somewhat delusional.

Reading the conference call transcript on Seeking Alpha management did not discuss the dividend. The analysts did not raise it. Discussion around any cash or similar fundamentals was incredibly superficial.

So this flavour of cool-aid has an unidentified taste. Clearly the board declared it after management must have recommended it. The dividend increase has no clear useful value as any critical evaluation of this company will identify problems and deteriorating cash positions.

Boards and management that do bizarre things eventually burn themselves and shareholders. Management should speak to the dividend and identify the rationale.