KB Homes Dividend Begs Liquidity Question

KB Homes (KBH) announced a dividend of twenty five cents per share, payable on May 22, 2008 to shareholders of record on May 8, 2008. This was done on April 3 at almost the market close time and fully 29 days before the stock will go ex dividend. Just to review the macro trends in this business, home building is a terrible place and industries hit hard like this do not turn around on a dime and return to record levels of profitability. If they could the stock would not have dropped the way it did.

On March 28 they announced poor results which everyone expected from a home builder, regardless of stature in the industry. Five days later they try to apply a financial bandage and announce a dividend. They also try to embed the news of the dividend into the stock for a long period of time. At approximately 89 million shares outstanding we know this amounts to roughly $22 million.

While on one hand you have to understand corporate executives desperately trying to keep their stock valuations as high as possible, at the same time you need to look through the machinations and wonder about the liquidity issues over the long term. This would be a good time to conserve cash. I do not believe anyone is currently buying the stock for the dividend yield. $22 million at work within the company will create more long term wealth for shareholders than the last dividend declared.
The earnings press release did a good job of explaining the current problems they are faced with.

The dividend press release did a poor job in communicating management thinking on cash flow and liquidity.